M Ayhan Kose, Franziska Ohnsorge, Lei (Sandy) Ye, 07 January 2016

Emerging markets face their fifth consecutive year of slowing growth. This column examines the nature of the slowdown and appropriate policy responses. Repeated downgrades in long-term growth expectations suggest that the slowdown might not be simply a pause, but the beginning of an era of weak growth for emerging markets. The countries concerned urgently need to put in place policies to address their cyclical and structural challenges and promote growth.

Biagio Bossone, Marco Cattaneo, 04 January 2016

‘Helicopter tax credits’ have been proposed as a means of injecting new purchasing power into the economies of Eurozone Crisis countries. This column outlines one such system for Italy. The Tax Credit Certificate system is projected to accelerate Italy’s recovery over the next four years, and will likely be sustainable. It also provides a tool to avoid the breakup of the Eurosystem and its potentially disruptive consequences.

Joshua Aizenman, 03 January 2016

The Global Crisis renewed debate on the benefits and limitations of coordinating international macro policies. This column highlights the rare conditions that lead to international cooperation, along with the potential benefits for the global economy. In normal times, deeper macro cooperation among countries is associated with welfare gains of a second-order magnitude, making the odds of cooperation low. When bad tail events induce imminent and correlated threats of destabilised financial markets, the perceived losses have a first-order magnitude. The apprehension of these losses in times of peril may elicit rare and beneficial macro cooperation.

Avinash Persaud, 20 November 2015

As the recent Financial Stability Board decision on loss-absorbing capital shows, repairing the financial system is still a work in progress. This column reviews the author’s new book on the matter, Reinventing Financial Regulation: A Blueprint for Overcoming Systemic Risks. It argues that financial institutions should be required to put up capital against the mismatch between each type of risk they hold and their natural capacity to hold that type of risk. 

Mouhamadou Sy, 09 November 2015

From the introduction of the euro in 1999 to the Greek crisis in 2010, the Eurozone witnessed external imbalances between countries at its core and those at its periphery. These imbalances have been attributed either to differences in competitiveness or to the effect of financial integration. This column argues that in order to understand the imbalances within the Eurozone, it is necessary to consider credit costs and capital flows. The lower real cost of credit for high-inflation countries must be taken into account, as well as the inflow of capital to the non-tradable sector that this implies. Monetary policy cannot be conducted in a ‘one size fits all’ manner.

Jakob de Haan, Wijnand Nuijts, Mirea Raaijmakers, 06 November 2015

The Global Crisis revealed serious deficiencies in the supervision of financial institutions. In particular, regulators neglected organisational culture at the institutional level. This column reviews efforts since 2011 by De Nederlandsche Bank to oversee executive behaviour and cultures at financial institutions. These measures aimed at identifying risky behaviour and decision-making processes at a sufficiently early stage for appropriate countermeasures to be implemented. The findings show that regulators can play a larger part in securing the stability of the financial system by taking an active role in shaping institutional cultural processes.

Alex Pienkowski, Pablo Anaya, 06 August 2015

During the Global Crisis, sovereign debt-to-GDP ratios grew substantially in the face of shocks to growth, increased fiscal deficits, bank recapitalisation costs, and rising borrowing costs. This column looks at how these various shocks interact with each other to exacerbate or mitigate the eventual impact on debt. Choice of monetary policy regime is an important determinant of how public debt reacts to these shocks.

Esa Jokivuolle, Jussi Keppo, Xuchuan Yuan, 23 July 2015

Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.

Stefan Gerlach, Reamonn Lydon, Rebecca Stuart, 21 July 2015

Despite being a mainstay of macroeconomic theory for the past half century, the Phillips curve often receives the death knell from various commentators. These critiques often rely on results from data samples spanning relatively short periods. Using the case of Ireland, this column argues that short-term idiosyncrasies can explain the failure of the model in these contexts. Taking a longer historical view, the Phillips curve remains a useful macroeconomic model, at least in the Irish context.

Jakob de Haan, Dirk Schoenmaker, 06 July 2015

The financial crisis brought with it many challenges, both to prevailing disciplinary tenets, and for research and policy more generally. This column outlines the lessons that can be drawn from the financial crisis – issues like financial market failures, macro-prudential policy, structural changes of the financial system, and the European banking union. It argues for the inclusion of these topics in curricula for the next generation of finance students.

Caroline Fohlin, Thomas Gehrig, Marlene Haas, 07 May 2015

The story of the run-up to the Global Crisis is, unfortunately, not an entirely new one. This column argues that regulators would do well to read up on the ‘Panic of 1907’. What quelled rumours and panicky behaviour back then still applies – maintaining market liquidity through measures that encourage transparency.

Xavier Vives, 17 March 2015

The 2007–08 crisis revealed regulatory failures that had allowed the shadow banking system and systemic risk to grow unchecked. This column evaluates recent proposals to reform the banking industry. Although appropriate pricing of risk should make activity restrictions redundant, there may nevertheless be complementarities between these two approaches. Ring-fencing may make banking groups more easily resolvable and therefore lower the cost of imposing market discipline.

Anusha Chari, Peter Blair Henry, 06 March 2015

In the wake of the Great Recession, a contentious debate has erupted over whether austerity is helpful or harmful for economic growth. This column compares the experiences of the East Asian countries – whose leaders responded to the East Asian financial crisis with expansionary fiscal policy – with those of the European periphery countries during the Great Recession. The authors argue that it was a mistake for the European periphery countries to pivot from fiscal expansion to consolidation before their economies had recovered.

Philippe Bacchetta, Kenza Benhima, Céline Poilly, 19 February 2015

The corporate cash ratio – the share of liquid assets in total assets – comoves with employment in the US. This column argues that disentangling liquidity shocks and credit shocks is key to understanding this comovement, and that liquidity shocks appear to be crucial. These shocks make production less attractive or more difficult to finance, while they also generate a need for internal liquidity to pay wages, which can be satisfied by holding more cash.

Philip Bunn, May Rostom, 12 January 2015

A number of US studies have found a link between high pre-crisis debt and weak consumption after the recent financial crisis. This column investigates the relationship between household debt and consumption in the UK. Spending cuts associated with debt are estimated to have reduced the level of aggregate private consumption by around 2% after 2007, unwinding the faster growth in spending by highly indebted households, relative to other households, before the financial crisis.

Xavier Vives, 22 December 2014

Banking has recently proven much more fragile than expected. This column argues that the Basel III regulatory response overlooks the interactions between different kinds of prudential policies, and the link between prudential policy and competition policy. Capital and liquidity requirements are partially substitutable, so an increase in one requirement should generally be accompanied by a decrease in the other. Increased competitive pressure calls for tighter solvency requirements, whereas increased disclosure requirements or the introduction of public signals may require tighter liquidity requirements.

Brian Pinto, 17 December 2014

Since the Global Crisis, concerns have grown that advanced economies are suffering from secular stagnation. This column discusses the lessons that can be learnt from the economic transition of central and eastern Europe and the emerging-market crises of the late 1990s and early 2000s. Structural reform is particularly costly in the context of a debt overhang and an overvalued exchange rate. However, the crux is not debt restructuring per se, but whether economic governance changes credibly for the better following it.

Irina Balteanu, Aitor Erce, 12 November 2014

The feedback loop between banking crises and sovereign debt crises has been at the heart of recent problems in the Eurozone. This column presents stylised facts on the mechanisms through which banking and sovereign crises combine and become ‘twin’ crises. The results point to systematic differences not only between ‘single’ and ‘twin’ crises, but also between different types of ‘twin’ episodes. The timing of ‘twin’ crises – which crisis comes first – is important for understanding their drivers, transmission channels, and economic consequences.

Hugh Rockoff, 04 October 2014

World War I profoundly altered the structure of the US economy and its role in the world economy. However, this column argues that the US learnt the wrong lessons from the war, partly because a halo of victory surrounded wartime policies and personalities. The methods used for dealing with shortages during the war were simply inappropriate for dealing with the Great Depression, and American isolationism in the 1930s had devastating consequences for world peace.

Alan Moreira, Alexi Savov, 16 September 2014

The prevailing view of shadow banking is that it is all about regulatory arbitrage – evading capital requirements and exploiting ‘too big to fail’. This column focuses instead on the tradeoff between economic growth and financial stability. Shadow banking transforms risky, illiquid assets into securities that are – in good times, at least – treated like money. This alleviates the shortage of safe assets, thereby stimulating growth. However, this process builds up fragility, and can exacerbate the depth of the bust when the liquidity of shadow banking securities evaporates.

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