Shadow banking and the economy

Alan Moreira, Alexi Savov 16 September 2014

a

A

Shadow banking, what is it good for? At the epicentre of the global financial crisis, shadow banking has become the focus of intense regulatory scrutiny. All reform proposals implicitly take a stance on its economic value.

According to the prevailing regulatory arbitrage and neglected risks views, it doesn’t have any – shadow banking is about evading capital requirements, exploiting ‘too big to fail’, and marketing risky securities as safe to unwitting investors. The right response is to bring shadow banking into the regulatory and supervisory regime that covers insured banks.

a

A

Topics:  Financial markets Global crisis Macroeconomic policy

Tags:  shadow banking, banking, financial crisis, global crisis, regulatory arbitrage, liquidity transformation, financial stability, externalities, collateral, business cycle, financial regulation, financial fragility, liquidity, liquidity crunch

Quantifying the macroeconomic effects of large-scale asset purchases

Karl Walentin 11 September 2014

a

A

Central banks have used various unconventional monetary policy tools since the onset of the financial crisis yet the debate continues regarding their efficiency. This column attempts to shed light on the ‘bang for the buck’, or the macroeconomic effects, of one such unconventional monetary policy – the Federal Reserve’s large-scale asset purchases of mortgage-backed securities employed during the Fed’s QE1 and QE3 programs.

a

A

Topics:  Global crisis Monetary policy

Tags:  monetary policy, unconventional monetary policy, large-scale asset purchases, central banking, financial crisis, Federal Reserve, quantitative easing, mortgage-backed securities, term premia, zero lower bound, interest rates, US, UK, Sweden, mortgages, global crisis

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

a

A

“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

a

A

Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

What were they thinking? The Federal Reserve in the run-up to the 2008 financial crisis

Stephen Golub, Ayse Kaya, Michael Reay 08 September 2014

a

A

Financial crises are caused by imprudent borrowing and lending, but as former Federal Reserve chairman William McChesney Martin noted, it is ultimately up to regulators to ‘take away the punch bowl’ when the larger economy is at risk. Indeed, many have criticised regulators for failing to anticipate and prevent the 2008 crash (Buiter 2012, Gorton 2012, Johnson and Kwak 2010, Roubini and Mihm 2010). Little work has been done, however, on why regulatory agencies failed to act despite warnings from prominent commentators (Borio and White 2004, Buffett 2003, Rajan 2005).

a

A

Topics:  Financial markets Global crisis Monetary policy

Tags:  financial crisis, Federal Reserve, FOMC, global crisis, collateralised debt obligations, Credit Default Swaps, LTCM, CDOs, CDSs, central banking

The role of corporate saving in global rebalancing

Philippe Bacchetta, Kenza Benhima 24 August 2014

a

A

The increase in global imbalances in the last decade posed a theoretical challenge for international macroeconomics. Why did some less-developed countries with a higher need for capital, like China, lend to richer countries? The inconsistency of standard open-economy dynamic models with actual global capital flows had already been stressed before (e.g. by Lucas 1990), but the sensitivity to this issue became more acute with increasing global imbalances. This stimulated the development of several alternative theoretical frameworks.

a

A

Topics:  International finance International trade

Tags:  interest rates, global imbalances, capital flows, saving, global crisis, credit constraints, savings glut, zero lower bound, corporate saving, global rebalancing

Ballooning finance

Bruno Biais, Jean-Charles Rochet, Paul Woolley 21 August 2014

a

A

One of the curiosities of the modern economy is why the finance sector is so large. Economists have only recently sought to document and ponder this phenomenon. Empirically, Greenwood and Scharfstein (2013) find that, in the US, financial services, which accounted for 2.8% of GDP in 1950, made up 8.3% of GDP in 2006.

a

A

Topics:  Financial markets

Tags:  securitisation, financial crises, moral hazard, asymmetric information, financial innovation, global crisis, bubbles, monitoring, shirking, junk bonds, CDOs, CDSs, ETFs

Identifying and quantifying monetary policy transmission through bank balance sheets

Kaoru Hosono, Daisuke Miyakawa 09 August 2014

a

A

How does monetary policy affect firm activities? While there is long-standing literature on this issue, the transmission mechanism of monetary policy is currently attracting renewed attention. The reason is that many central banks – including the US Federal Reserve, the Bank of England, the ECB, and the Bank of Japan – have introduced unconventional monetary policies such as quantitative easing and credit easing in the wake of the Global Crisis, and sooner or later will have to exit from these policies.

a

A

Topics:  Financial markets Global crisis Monetary policy

Tags:  monetary policy, Japan, global crisis, quantitative easing, unconventional monetary policy, balance sheets, financial accelerator, credit easing, bank lending channel

Economic policies pursuant to the Global Crisis: A critique

Richard Wood 13 July 2014

a

A

Interrelated economic problems

Current high public debt burdens are due to three main forces:

a

A

Topics:  Global crisis Macroeconomic policy

Tags:  global crisis, policy response, overt money financing

R&D internationalisation during the Global Crisis

Bernhard Dachs, Georg Zahradnik 06 July 2014

a

A

Foreign firms’ share of total business R&D expenditure increased during the last three decades in almost all countries where data is available, but this trend stopped with the Global Crisis of 2008–2009. In most countries, R&D of foreign firms was more severely affected by the crisis than R&D of domestic firms. However, the crisis did not lead to a new global distribution of overseas R&D expenditure.

a

A

Topics:  Global crisis Productivity and Innovation

Tags:  R&D, globalisation, multinationals, FDI, innovation, global crisis, persistence, autonomy, subsidiaries

Reform and be re-elected: Evidence from the post-crisis period

Marco Buti, Alessandro Turrini, Paul van den Noord 04 July 2014

a

A

The former Eurogroup president allegedly said, “We all know what to do but we don’t know how to be re-elected once we have done it” (The Economist 2007). In an earlier VoxEU column (Buti et al. 2008), we argued that the presumed electoral risk for a reformist government – based on the statement by Mr Juncker – is largely unfounded, in particular if a number of conditions are met.

a

A

Topics:  Politics and economics

Tags:  elections, reforms, global crisis

Pages