Just like an overweight victim recovering from a severe heart attack, the financial system must change its ways. After working tirelessly – and in the end successfully – to stabilise the patient, the world’s central bankers and supervisors are developing a rigorous diet and exercise programme to help avoid a relapse.
Strengthening the financial system: The benefits outweigh the costs
Stephen Cecchetti, Benjamin H Cohen, 20 August 2010
The low-interest-rate trap
Francesco Giavazzi, Alberto Giovannini, 19 July 2010
There is a fundamental flaw in the way central banks set official interest rates. This flaw has created what might be called the “low-interest-rate trap”. Low rates induce excessive risk taking, which increases the probability of crises, which in turn, requires low interest rates to keep the financial system alive.
We must escape the grip of short-term funding
Enrico Perotti, 5 July 2010
Last week, the banks won but financial stability lost. Heavy lobbying undermined G20 support for proposals by the Basel Committee to plug a major gap in banking regulation. Measures such as “liquidity buffers” were challenged.
Double targeting for Central Banks with two instruments: Interest rates and aggregate bank equity
Hans Gersbach, 1 February 2010
The current crisis has placed a fundamental question at the centre of policy discussion: “Should monetary policy and banking regulation be conducted separately?” Opinions differ – see Adrian and Shin (2009), Goodhart (2008), and De Larosière et al. (2009).
Liquidity in the financial crisis: New insights on the lender of last resort
Pierre-Olivier Weill, Guillaume Rocheteau, Ricardo Lagos, 16 December 2009
Under every central banker’s bed is a copy of “Lombard Street” by Walter Bagehot. Published in 1873, it argues that the central bank should act as a lender of last resort during crises to ensure that financial intermediaries have the resources to provide liquidity in asset markets.
Adjustments to the accountability and transparency of the European Central Bank
Sylvester Eijffinger, 24 October 2009
It is widely agreed that central banking should not be subject to "political business cycles". Consequently, in the last decades, it has become an integral part of modern central banking policy that full operational (or functional) independence of central banks is a welfare-enhancing quality.
The global crisis and central banks in Latin America: Breaking with the past
Luis I. Jácome H., 20 October 2009
Latin America has a history of recurrent financial crises that took a large toll on economic growth and fuelled social unrest. Frequently, these crises were triggered by exogenous shocks, which unveiled macroeconomic and/or financial weaknesses, leading to simultaneous banking and currency crises.
Money market tensions and international liquidity provision during the crisis
Raphael Auer, Sébastien Kraenzlin, 14 October 2009
The recent crisis has triggered a wide spectrum of policy responses, including many policies that were unthinkable two years ago. One of these unthinkable policies was the decision of the world's major central banks to engage in reciprocal swap agreements, which involve a central bank handing out liquidity denominated in foreign currencies to its counterparties.
'No one saw this coming' – or did they?
Dirk Bezemer, 30 September 2009
From the very beginning of the credit crisis and the ensuing recession, it has become conventional wisdom that "no one saw this coming".
Misdiagnosing the crisis: The real problem was not real, it was nominal
Scott Sumner, 10 September 2009
Here is a puzzle. Almost everything we have learned from recent research in monetary history, theory, and policy points to the Federal Reserve as the cause of the crash of late 2008. More specifically, an extremely tight monetary policy in the US (and perhaps Europe and Japan) seems to have sharply depressed nominal spending after July 2008.
- What good are children?Deaton, Stone
- Money makes people right-wing and inegalitarianOswald, Powdthavee
- Job polarisation and the decline of middle-class workers’ wagesBoehm
- Searching for sources of inequalityFurceri, Loungani
- Measuring economic progressCoyle
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- The ECB’s stealth bailoutSinn
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji