Before the 2008 crisis, the mainstream worldview among US macroeconomists was that economic fluctuations were regular and essentially self-correcting. In this column, IMF chief economist Olivier Blanchard explains how this benign view of fluctuations took hold in the profession, and what lessons have been learned since the crisis. He argues that macroeconomic policy should aim to keep the economy away from ‘dark corners’, where it can malfunction badly.
Olivier Blanchard, Friday, October 3, 2014
Erik Feyen, Raquel Letelier, Inessa Love, Samuel Munzele Maimbo, Roberto Rocha, Saturday, March 15, 2014
Eastern Europe was hit especially hard by the credit crunch during the global financial crisis. This column presents new evidence suggesting that reliance on foreign funding was more important than foreign bank ownership per se in exacerbating the post-crisis credit contraction. These findings point to the need to put more emphasis on the discussion of bank business models, regulatory standards, and supervisory arrangements.
Samuel Bentolila, Marcel Jansen, Saturday, February 1, 2014
The evidence about the effect of declined lending during the Great Recession on the employment is quite limited. This column presents new research on the problem focusing on the case of Spain. A large part of credit to non-financial firms before the crisis came from weak banks, which solvency was strongly eroded during the crisis. As a result, firms that relied heavily on loans from such weak banks displayed significantly higher employment reduction in comparison to similar, less exposed firms. The bulk of employment destruction was driven by firm closures, which carries higher economic costs than downsizing, and could potentially make the recession more protracted.
Ata Can Bertay, Asli Demirgüç-Kunt, Harry Huizinga, Thursday, August 2, 2012
Bank bonuses may not have changed much in the last few years, but their owners have. This column asks whether government-owned banks may bring stability to the supply of credit over the business cycle and especially at a time of financial crisis.
Sarah Holton, Martina Lawless, Fergal McCann, Sunday, March 4, 2012
As the Eurozone crisis continues, lending to the real economy has fallen significantly. But it is difficult to know if this is due to a drop in demand for loans or a drying up of supply. Using data for small- and medium-sized companies in 11 Eurozone countries, this column identifies the effects of the crisis on credit demand, supply, and conditions.
Andrea F Presbitero, Gregory F Udell, Alberto Zazzaro, Sunday, February 12, 2012
Understanding credit crunches is a major concern for policymakers. This column suggests that the severity of a credit crunch in a specific area depends on the hierarchical structure of the banks operating in that credit market. It explores the Italian case and shows that, in the months following the collapse of Lehman Brothers, banks retracted disproportionally from markets that are more distant from their headquarters.
Marco Onado, Andrea Resti, Wednesday, December 7, 2011
The newborn European Banking Authority has been fiercely criticised in the few months of its life. This column argues that most of the criticisms have been driven by lobbying interests more than by noble worries on the future of the European economy. It adds that the current market turmoil requires a pan-European guarantee scheme for banks, a ‘big bazooka’ for sovereign debt which does not boil down to a pop gun, and stronger bank supervision at the EBA level.
Adrian R. Bell, Chris Brooks, Tony Moore, Wednesday, May 13, 2009
It is widely believed that the current credit squeeze, leading to bank failures, is a modern phenomenon arising from the interplay of a historically unique set of circumstances that could not have been foreseen. But a team of academics – a finance professor and two medieval historians – at the University of Reading’s ICMA Centre has documented a medieval credit crunch that bears remarkable parallels with the current crisis.
Daniel Gros, Sunday, December 21, 2008
Most countries need a fiscal stimulus, but how should it be implemented? This column assesses fiscal policy's potential to increase demand and argues that any meaningful boost must come from transfers to the private sector, not infrastructure investments. Tax cuts will be most effective in countries where households are net borrowers.
Arvind Subramanian, Monday, November 10, 2008
The Indian variant of the credit crunch is different. This column outlines potential means of expanding India’s credit supply. Simply cutting interest rates will not suffice.
Frank Heinemann, Sunday, October 26, 2008
The dizzying falls in equity prices seem to have stopped. If they restart, it may be time for radical measures. This column suggests one motivated by bubble theory. The Fed could temporarily guarantee a lower bound for the S&P 500 through targeted purchases of market portfolios via open-market operations and financed by injecting cash.
The Editors, Monday, August 18, 2008
Edited by Andrew Felton and Carmen Reinhart, this freely downloadable book brings together columns that provide invaluable insights into the crisis from the world’s leading experts.
Guillermo de la Dehesa, Wednesday, July 16, 2008
The current credit crisis should be both a squeeze and a crunch, but it seems to have been neither in the euro area. This column explains why credit may become costlier or scarcer under current conditions and explores how European financial entities seem to be defying the negative news.
Rafael Repullo, Javier Suarez, Monday, July 14, 2008
Basel II’s goal was to reduce incentives for excessive risk taking. Making banks’ capital requirements risk-sensitive, however, also set the system up for credit crunches during economic down turns. This column argues that small cyclical adjustments to the confidence levels set by regulator could preserve Basel II’s value-at-risk foundation while avoiding painful credit crunches during periods of economic distress.
Nicholas Bloom, Wednesday, June 4, 2008
The credit crunch has produced significant volatility in the stock market. This column argues that the wave of uncertainty troubling the markets will likely induce a recession – and render policy instruments powerless to prevent it.
Dennis J Snower, Friday, September 28, 2007
Economists can’t say: “we told you so.” Economists don’t have perfect foresight. But like doctors after the outbreak of a contagious disease – economists can tell you how the disease might spread, so that you may be better prepared. Here are some of the possible dangers ahead.
Willem Buiter, Anne Sibert, Monday, August 13, 2007
Last week's actions by the ECB, the Fed and the Bank of Japan were not particularly helpful – a classic example of trying to manage a credit crisis or liquidity squeeze using the tools suited to monetary policy-making in orderly markets. Monetary policy is easy; preventing or overcoming a financial crisis is hard; managing the exit from a credit squeeze without laying the foundations for the next credit and liquidity explosion is harder still. Central bankers should earn their keep by acting as market makers of last resort.