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.
Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, Saturday, August 1, 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
Kuniyoshi Saito, Daisuke Tsuruta, Friday, November 14, 2014 - 00:00
Pierluigi Bologna, Arianna Miglietta, Marianna Caccavaio, Tuesday, October 14, 2014 - 00:00
Fergal McCann, Tara McIndoe-Calder, Tuesday, September 23, 2014 - 00:00
Nicola Gennaioli, Alberto Martin, Stefano Rossi, Saturday, July 19, 2014 - 00:00
There is growing concern – but little systematic evidence – about the relationship between sovereign default and banking crises. This column documents the link between public default, bank bondholdings, and bank loans. Banks hold many public bonds in normal times (on average 9% of their assets), particularly in less financially developed countries. During sovereign defaults, banks increase their exposure to public bonds – especially large banks, and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults.
Alberto Martin, Jaume Ventura, Saturday, July 5, 2014 - 00:00
There is a widespread view among macroeconomists that fluctuations in collateral are an important driver of credit booms and busts. This column distinguishes between ‘fundamental’ collateral – backed by expectations of future profits – and ‘bubbly’ collateral – backed by expectations of future credit. Markets are generically unable to provide the optimal amount of bubbly collateral, which creates a natural role for stabilisation policies. A lender of last resort with the ability to tax and subsidise credit can design a ‘leaning against the wind’ policy that replicates the ‘optimal’ bubble allocation.
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.
Joseph Noss, Priscilla Toffano, Sunday, April 6, 2014 - 00:00
The impact of tighter regulatory capital requirements during an economic upswing is a key question in macroprudential policy. This column discusses research suggesting that an increase of 15 basis points in aggregate capital ratios of banks operating in the UK is associated with a median reduction of around 1.4% in the level of lending after 16 quarters. The impact on quarterly GDP growth is statistically insignificant, a result that is consistent with firms substituting away from bank credit and towards that supplied via bond markets.
Francesco Pappadà, Yanos Zylberberg, Monday, February 3, 2014 - 00:00
Greece’s austerity package included an unprecedented increase in the VAT rate, but the resulting increase in revenue was much lower than expected. This column links this disappointing result to the ‘transparency response’ of firms to higher tax rates. In countries like Greece with poor tax monitoring, firms face a tradeoff when deciding whether to declare their activity. Transparency is a necessary condition for accessing external finance, but it also means having to pay tax. Improving credit conditions for small and medium-size Greek firms might shift this tradeoff in favour of transparency.
Erik Feyen, Ines Gonzalez del Mazo, Sunday, May 12, 2013 - 00:00
Before the global financial crisis, European banks had rapidly expanded their foreign-lending activities. However, this column argues that financial stress in Europe has put this process into reverse and negatively affected credit conditions in developed and emerging markets alike. As European banks repair their balance sheets and rethink their business models in a context of stricter regulatory requirements, financial fragmentation, and a deteriorating European economy, they continue to retrench to home markets.
Moritz Schularick, Alan Taylor, Wednesday, October 24, 2012 - 00:00
Is the sluggish growth we see in the North Atlantic economies normal? This column updates the authors’ 5 October 2012 column to include an analysis of the UK. The original column looks at 14 advanced economies over the past 140 years and shows that larger credit booms during expansions have been systematically associated with more severe and prolonged slumps. Measured against the historical benchmark, the recent US recovery has been far better than could have been expected. The same cannot be said of the UK’s growth performance.
Sarah Holton, Martina Lawless, Fergal McCann, Sunday, March 4, 2012 - 00:00
As the Eurozone crisis continues, lending to the real economy has fallen significantly. But it is difficult to know if this is due to a drop in demand for loans or a drying up of supply. Using data for small- and medium-sized companies in 11 Eurozone countries, this column identifies the effects of the crisis on credit demand, supply, and conditions.
Mathias Hoffmann, Iryna Stewen, Sunday, February 19, 2012 - 00:00
Few would deny that there is a strong link between the health of a country’s banks and its public finances. With that in mind, this column argues that the banking system can learn from banking deregulation in the US, with knock on effects for Europe’s sovereign debt crisis.
Sheldon Garon, Friday, January 6, 2012 - 00:00
Sheldon Garon of Princeton University talks to Romesh Vaitilingam about his book, ‘Beyond Our Means: Why America Spends While the World Saves’. He contrasts continental European and East Asian countries, which have over many decades encouraged their citizens to save, with the US, which has promoted mass consumption and reliance on credit, culminating in the global financial meltdown. The interview was recorded in London in November 2011. [Also read the transcript]
Olivier Jeanne, Anton Korinek, Sunday, November 28, 2010 - 00:00
The damage caused by the global crisis and fiscal crises in several developed countries has rejuvenated support for regulation and has reignited research interest. This column presents one recent proposal: A Pigouvian tax to help bring the amount of debt and capital held by the financial sector closer to the socially optimal level.
Lucrezia Reichlin, Domenico Giannone, Michele Lenza, Huw Pill, Tuesday, November 23, 2010 - 00:00
Did monetary policy errors cause the economic collapse of the early 1930s? What lessons have monetary policymakers and central banks taken from this episode? Discussion Paper 8125 sets out to address these questions, in the context of the financial crisis of 2008-09 and with application to the euro area.