‘Too big to fail’ is an enduring problem for financial authorities and regulators. While forbidding government bailouts may be a popular move, the strategy lacks credibility. This column examines the proposals of the Minneapolis Plan to End Too Big to Fail. The plan has many virtues that tackle systemic problems and that build on the Dodd-Frank Act’s crisis prevention and management tools. However, further analysis of the plan is still needed to ensure that its measures aren’t circumvented.
Identifying the exact triggers for safe-haven flows in not easy, nor is tracking the ways in which demand for safe havens materialises. This column uses an empirical analysis of movements of the Swiss franc and Japanese yen since 2000 to show that these safe-haven currencies reacted strongly to non-domestic macro surprises, especially during the Global Crisis, and that this is in addition to the expected reaction to general changes in the risk environment. Oddly, for European macro surprises, only German data influence safe-haven currencies.
Recent research suggests a point beyond which the benefits of financial development diminish, and further development can even hurt growth. This column describes how a negative relationship between credit and growth emerged strongly after 1990 and was particularly pronounced in the Eurozone, consistent with the notion that an overgrown financial sector weakens economic growth potential. It also argues that slower growth leads to more rapid financial sector expansion. Policymakers need to be aware of the possibility that causality runs in both directions.
The availability of statistics on services by modes of supply has been a longstanding priority for trade negotiators and an important element of other trade policy priorities. Based on a recent Eurostat project, this column presents the first such estimates for EU trade in services. It also explores possible avenues for building a global services dataset by modes of supply building on the latest European initiatives in this area.
National trade policies have been at the heart of recent policy debates, with many calls for industrial policies to help pick winners. This column shows that while a few export goods account for the bulk of export value within each country, hyper-specialisations are very unstable, making it unlikely that industrial policy will work even in the medium run. The best policy to promote exports would be just to let entrepreneurs exploit new opportunities as they arise.
Other Recent Columns:
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- Ego trips to the grave: The dangers of status competition
- Helicopter money: Loved, not spent
- Confusion about the lender of last resort
- US tariffs are an arbitrary and regressive tax
- Immigration and economic prosperity
- New models for macroeconomic policy
- The causes of mortgage default
- The future of central bank independence
- The effectiveness of information campaigns in countering public opposition to immigration
- The ascendancy of international data flows
- Unemployment insurance and employment during the Great Recession
- Women in competitive environments: Evidence from expert chess
- Using lotteries to incentivise safer sexual behaviour
- Passing of Anthony B. Atkinson
- ‘Peak trade’ is premature
- The economic impact of Brexit-induced reductions in migration to the UK
- Impact of taxing temporary job contracts
- The effect of foreign investors on local housing markets
- Unusual outcomes and uncertain times