Stephen Cecchetti, Kim Schoenholtz, 28 May 2017

In April 2017, the US House of Representatives passed a bipartisan revision of the bankruptcy code, which would expedite the resolution of adequately structured intermediaries. This column considers the new Financial Institutions Bankruptcy Act of 2017 and how it fits in with the existing Dodd-Frank mechanism. By raising the odds of an effective resolution, the Act (as a complement to Dodd-Frank) boosts the credibility of the US regime. However, in the absence of an Orderly Liquidation Fund-like provision for temporary government funding, investors and foreign regulators will expect a future US government to re-introduce an ad hoc bailout mechanism when it is inevitably needed.

Paul-Adrien Hyppolite, 27 May 2017

The Greek crisis is typically seen as a sovereign debt crisis. Using a new dataset, this column explores the dynamics of national wealth accumulation in Greece over the past two decades. It argues that, despite certain idiosyncrasies, the Greek crisis can be better characterised as a balance of payments crisis. This implies that Greece shouldn’t be seen as an outlier amongst the periphery Eurozone countries. 

Thorsten Beck, Samuel Da-Rocha-Lopes, Andre Silva, 26 May 2017

The new resolution and bail-in regime in Europe hypothetically lets banks fail without resorting to public funding. This column examines the effects of the bail-in of the Portuguese Banco Espírito Santo. Existing borrowers from the banks exposed to the bail-in experienced a negative impact on their credit supply from these banks, but were able to compensate with increased borrowing from other, less-exposed banks. Nevertheless, the bail-in had negative real economy consequences with affected firms reducing investment and employment, while increasing precautionary cash holdings.

Bruno Frey, David Iselin, 26 May 2017

It is high time to forget some economic ideas that hinder progress in the field. Some examples include the assumption that GDP is the best way to measure economic progress, or the belief that economic growth will eventually improve the welfare of the population as a whole. This column discusses some of these ideas and argues that economics is a progressive science that is enriched by the ‘creative destruction’ of ideas. 

Roberto Bonfatti, Kevin O'Rourke, 25 May 2017

Classical models suggest that shifts in the balance of power can lead to conflict, where the established power has the incentive to trigger war to deter the threat to its dominance. This column argues that this changes if international trade is taken into account. Industrialisation requires the import of natural resources, potentially leading a smaller nation to trigger war either against a resource-rich country or the incumbent nation. The model can help explain the US-Japanese conflict of 1941 and Hitler’s invasion of Poland, and has implications for US-Chinese relations today.

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