Greater inequality and household borrowing? New evidence from household data

Olivier Coibion, Yuriy Gorodnichenko, Marianna Kudlyak, John Mondragon 29 January 2014

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The financial crisis of 2008–09 was preceded by an exceptional rise in borrowing by US households, accounted for primarily by a rise in mortgage debt. There are two main views about the source of this ‘great leveraging’:

  • The rise in borrowing reflected ‘credit supply’ factors.

Proponents point to progress in information technology (Sanchez 2009) and rising financialisation of debt (especially mortgages) as increasing the supply of credit, particularly to low-income and high-risk households (Drozd and Serrano-Padial 2013).

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Topics:  Financial markets Poverty and income inequality

Tags:  US, Inequality, debt, credit rationing, subprime mortgage crisis

Catenarian fiscal discipline

Hans Gersbach 04 January 2014

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Limiting the accumulation of public debt in democracies has always been a problem, but it has become a particularly pressing one in the last few decades. While there are normative justifications for public debt-making – such as letting automatic stabilisers and tax-smoothing measures operate (Barro 1979) – political processes tend to push public debt to levels that are likely to be socially undesirable.

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Topics:  Macroeconomic policy

Tags:  democracy, fiscal policy, debt, time inconsistency, fiscal discipline

Public debt and economic growth: There is no ‘tipping point’

Markus Eberhardt, Andrea F Presbitero 17 November 2013

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The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles. In the US, although many political battles impinge on the Congressional debate over the debt ceiling and the resulting government shutdown of October 2013, this somewhat reflected a widespread belief that debt is dangerous, and that fiscal austerity represents the only way of restoring sustainable growth.

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Topics:  Macroeconomic policy

Tags:  growth, debt, austerity

The Scottish question

Angus Armstrong, Monique Ebell 26 October 2013

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In less than one year, on 18 September 2014, the Scottish electorate will vote on a question of historic significance – should Scotland remain in the UK, or should it become an independent country?

But what would an independent Scotland look like? We think that one important question that has not received nearly enough attention is debt. How will the existing UK government debt be divided between an independent Scotland and the continuing UK – assuming the remaining home nations constitute the continuing UK (Tierney 2013)?

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  independence, debt, Currency unions, Scotland, sterling

Sovereigns versus banks: Crises, causes and consequences

Òscar Jordà, Moritz Schularick, Alan Taylor 18 October 2013

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Some observers – often with great conviction – see the European crisis through the lens of public finance (Alessandrini et al. 2012). They see the key source of the problem as the inherent inability of past governments (many in the periphery, and possibly soon even some in the core) to live within their means. For these observers, stricter fiscal rules – a ‘better Maastricht’ – are what would have saved the day, and what will now be required to prevent another crisis down the road.

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Topics:  Economic history Financial markets Macroeconomic policy

Tags:  financial crises, business cycles, debt, fiscal space

The IMF and the legacy of the euro crisis

Susan Schadler 15 October 2013

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The IMF will live with the legacy of its role in the European debt crisis for years — if not decades.

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Topics:  Global governance International finance

Tags:  IMF, debt, EZ crisis

Enhancing the global financial safety net through central-bank cooperation

Edwin M. Truman 10 September 2013

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The prospect that the Federal Reserve will soon ease off on its purchases of long-term assets has increased financial-market uncertainty and contributed to a retrenchment in global capital flows. This turbulence has revived discussion of the need to enhance the global financial safety net –i.e. the set of arrangements to provide international liquidity to countries facing sharp reversals in capital inflows despite following sound economic and financial policies.1

The dominant lessons from the financial crises of the past decade are:

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Topics:  Global crisis International finance

Tags:  Central Banks, liquidity, banking, debt

External liabilities and crisis risk

Luis AV Catão, Gian Maria Milesi-Ferretti 04 September 2013

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Much has been written about the causes of the global financial crisis of 2008 – the role of the US subprime crisis as a triggering event, the generalised period of easy credit and financial excesses fuelling growing economic and financial vulnerabilities, the failures to properly regulate large systemic financial institutions. Nevertheless, our understanding of the intensity with which the crisis has affected different countries remains modest (Rose and Spiegel 2009, 2011).

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Topics:  Global crisis

Tags:  debt, Eurozone crisis, net external debt, liabilities

Eurobonds: The design is crucial

Roel Beetsma, Konstantinos Mavromatis 21 December 2012

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The debt crisis in Eurozone southern states has given rise to a number of measures to strengthen fiscal governance in Europe. It has also sped up plans for further integration of policymaking in the Eurozone. The European Council (2012) envisages the transition to a genuine economic and monetary union being based on four building blocks: an integrated financial framework (a ‘banking union’); an integrated budgetary framework; an integrated economic policy framework and measures to ensure the democratic legitimacy; and accountability of decision-making in the EMU.

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Topics:  EU institutions

Tags:  debt, Eurozone crisis, debt restructuring, eurobonds

Solving the macroeconomic policy challenge in Europe

Richard Wood 19 December 2012

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Countries in Europe are either slipping into recession or experiencing worsening depression. Economies are headed in the wrong direction, and the malaise is spreading. The current orthodoxies are failing.

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Topics:  Macroeconomic policy

Tags:  Subprime, debt, macroeconomic policy, quantitative easing

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