Small and medium-sized enterprises are supposed to be the key to growth, everywhere. These enterprises are risky, and when they are so important to the well-being of an economy, someone must bear the risk of funding them. This column argues that there is a real need for policymakers to focus on how we finance SMEs, as getting the institutions and structures right can pay dividends in the long run.
Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Franco Pozzolo, Wednesday, November 18, 2015 - 00:00
Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, Saturday, August 1, 2015 - 00:00
China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.
Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Franco Pozzolo, Wednesday, July 8, 2015 - 00:00
Capital requirements for banks have been raised since the Global Crisis in order to increase their resilience during periods of distress. This column introduces a new online journal, the first issue of which publishes a set of articles that studies the trade-off between hedging systemic risk and expanding lending to the real economy.
Clemens Jobst, Stefano Ugolini, Tuesday, June 23, 2015 - 00:00
Central banks today provide liquidity exclusively through purchases of (mostly) government bonds and through collateralised open-market operations. This column considers the evolution of liquidity provision by central banks over the past two centuries, and argues that there are alternative approaches to those that are focused on today. One such alternative is a revival of the 19th century practice of uncollateralised lending. This would discourage market participants from relying on informational shortcuts, and reduce the likelihood that informational shocks trigger collateral crises.
Jon Danielsson, Eva Micheler, Katja Neugebauer, Andreas Uthemann, Jean-Pierre Zigrand, Monday, February 23, 2015 - 00:00
Philippe Karam, Ouarda Merrouche, Moez Souissi, Rima Turk, Monday, February 2, 2015 - 00:00
James Wang, Tuesday, December 30, 2014 - 00:00
Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell, Sunday, June 29, 2014 - 00:00
Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth.
Peter Koudijs, Hans-Joachim Voth, Saturday, April 12, 2014 - 00:00
Human behaviour in times of financial crises is difficult to understand, but critical to policymaking. This column discusses new evidence showing that personal experience in financial markets can dramatically change risk tolerance. A cleanly identified historical episode demonstrates that even without losses, negative shocks not only modify risk appetite, but can also create ‘leverage cycles’. These, in turn, have the potential to make markets extremely fragile. Remarkably, those who witnessed this episode but were not directly threatened by it, did not change their own behaviour. Thus, personal experience can be a powerful determinant of investors’ actions and can eventually affect aggregate instability.
John Hooley, Glenn Hoggarth, Yevgeniya Korniyenko, Friday, February 14, 2014 - 00:00
The recent crisis revealed that lending by foreign banks can be more cyclical than that by domestic banks. This column presents research showing that bank ownership structure mattered, at least in the case of the UK. Foreign bank branches cut their lending more sharply than did foreign subsidiaries, thus, amplifying the domestic credit cycle. This finding suggests policymakers should pay close attention to risks that stem from foreign bank branches when they are ‘alive’, not only when they are ‘dead’ and pose an even greater financial instability.
Indraneel Chakraborty, Itay Goldstein, Andrew MacKinlay, Monday, November 25, 2013 - 00:00
Higher asset prices increase the value of firms’ collateral, strengthen banks’ balance sheets, and increase households’ wealth. These considerations perhaps motivated the Federal Reserve’s intervention to support the housing market. However, higher housing prices may also lead banks to reallocate their portfolios from commercial and industrial loans to real-estate loans. This column presents the first evidence on this crowding-out effect. When housing prices increase, banks on average reduce commercial lending and increase interest rates, leading related firms to cut back on investment.
Edda Zoli, Saturday, June 15, 2013 - 00:00
What has driven Italian sovereign spreads movements? This column presents new research looking into increased volatility in sovereign debt since the summer of 2011. Shocks in investor risk appetite, news related to the Eurozone debt crisis, and consistently bad news in Italy, have been important drivers of Italian sovereign spreads. These findings mean that we need to reduce country-specific vulnerabilities as well as sorting out the Eurozone.
Thorsten Beck, Berrak Buyukkarabacak, Felix Rioja, Neven Valev, Thursday, July 9, 2009 - 00:00
How does financial development affect macroeconomic outcomes? Previous studies have relied on aggregate measures. This column introduces a data set that distinguishes between lending to enterprises and households and investigates the consequences for economic growth, income inequality, and consumption smoothing.