Stefan Avdjiev, Bryan Hardy, Sebnem Kalemli-Ozcan, Luis Servén, 24 February 2017

Capital flows play a key role in the transmission of real and financial shocks across countries, but empirical work on flows by sector is scarce.  This column uses a newly constructed dataset of capital inflows for 85 countries, broken down by borrowing sector, to show that private debt flows are negatively correlated with global risk appetite, while borrowing by sovereigns is positively correlated with risk appetite. This and other results discussed show the importance of splitting capital inflows into their borrowing sectors when designing policy to manage macrofinancial risk.

Cristina Arellano, Andy Atkeson, Mark Wright, 10 January 2016

In the recent crisis in Southern Europe both sovereign governments and private citizens faced increased borrowing costs on their external debt. By contrast, no spillover to private borrowers occurred from the recent US state government debt crisis. This column argues that this different experience stems from much weaker European protections from government interference – the risk that governments will encumber private debt contracts by redenominating the currency of the contract, imposing capital controls, or passing debtor relief legislation. 

Sumit Agarwal, Souphala Chomsisengphet, Neale Mahoney, Johannes Stroebel, 09 January 2016

During the Great Recession, governments famously (and in some cases, infamously) provided banks with lower-cost capital and liquidity so that they would lend, expanding economic activity. This column assesses the efficacy of these policies, estimating marginal propensities to consume and borrow between 2008-2012.

Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell, 29 June 2014

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.