August 2011

Mink, 31 August 2011

While central bank liquidity support is used on a large scale to combat the instability of the banking sector, this column argues that the prospect of receiving such support might well have been one of the causes of the instability. In particular, it shows that the provision of liquidity support stimulates banks to engage in various forms of risk-taking, and to do so in a procyclical way.

Goodhart, 30 August 2011

The calls for better bank regulation are many. This column argues that regulators have the concepts right, but the mechanisms are in need of repair.

Bown, 29 August 2011

While the Great Recession has not led to a massive global resort to protectionism, governments have nevertheless been active with their trade policy during the crisis. This column explores how governments adjusted the scale and composition of their temporary trade barriers – antidumping, safeguard, and countervailing-duty policies –during the crisis, as well as how policy use fits recent historical context and creates the need for post-crisis policy reform.

Trautmann, Vlahu, 28 August 2011

One of the most iconic images from the subprime mortgage crisis in 2007 was the queue of people outside the British bank Northern Rock demanding their deposits back. This column uses experimental evidence to discuss another type of bank run – a borrower run – when mortgage holders strategically default on their loans.

Besley, Ghatak, 27 August 2011

As we approach three years since the fall of Lehman Brothers, the incentives that led the financial sector to take on too much risk still exist. This column argues that they will remain so long as governments continue to provide an implicit guarantee that banks will be bailed out. To tackle this, the authors dare to propose a tax on bonuses.

Gerlach, Moretti, 26 August 2011

Many observers argue that excessively expansionary monetary policy led to the recent global financial crisis. On the day of Ben Bernanke’s speech in Jackson Hole, this column agrees with the Fed chair that monetary policy was not the main cause. It argues that non-monetary forces drove down real interest rates and lowering nominal rates was the correct response. But central bankers and other regulators vastly underestimated the risks accompanying low short-term interest rates.

Perotti, Ratnovski, Vlahu, 26 August 2011

As leading economists in Jackson Hole and Lindau call for more and better regulation to avoid a repeat global crisis, this column argues that higher bank capital, while essential, will be no panacea. In particular, it shows that tail risk often goes unaddressed. Regulators should therefore adopt direct tools for dealing with tail risk, including limits on asset and liability-side risk exposures.

Bloom, 26 August 2011

Nicholas Bloom of Stanford University talks to Viv Davies about the evidence for a double-dip recession as a result of market uncertainties. They discuss market signals and the Eurozone crisis, and how the US and Europe could resolve its debt problems. Bloom maintains that healthcare reform in the US and the retirement age in Europe are key. The interview was recorded on 23 August 2011. [Also read the transcript]

Rasmussen, Roitman, 25 August 2011

Recent developments in oil markets and the global economy have, once again, triggered concerns about the impact of oil price shocks around the world. This column wonders whether the fuss is really necessary. It presents evidence of relatively small negative effects of oil price increases.

Gros, 24 August 2011

Eurobonds are being touted as the silver bullet to resolve the Eurozone crisis. This column argues that the Eurobonds proposal fails on legal, political, and economic grounds. It says that, whatever the variant, Eurobonds only make sense in a political union—and given the vast differences in national political systems and their quality of governance, any political union created on paper will not work in practice.

Fratzscher, 23 August 2011

Capital flows are booming—rising to unprecedented magnitudes since the global crisis. What should policymakers do to avoid the vagaries of such fickle flows? This column argues that while there are global factors, much of the flows to emerging markets stem from nation-specific “pull” factors. This suggests that policy responses should focus on improving institutions, deepening financial markets, and enhancing macroeconomic and prudential policies.

Gordon, 22 August 2011

The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect—an excess housing supply and besieged consumers unwilling to spend.

Bloom, 22 August 2011

UPDATED: The potentially explosive combination of Eurozone debt contagion, vulnerable banking systems, and European and American political paralysis has pushed stock-market volatility to levels nearly as bad as the days following the 11 September 2001 terrorist attacks. Nobody knows what happens next. This column reviews research on 16 previous shocks and concludes that today’s uncertainty shock will create a short, sharp contraction in late 2011 of about 1% with a rebound coming in spring 2012.

Muellbauer, Murata, 21 August 2011

The global crisis of 2008-2009 has refocused attention on the lessons of Japan’s lost decade, with many suggesting that Europe and the US are heading the same direction. This makes a thorough understanding of the Japanese case an urgent matter. But this column argues that pushing the analogies too far is a mistake that could prolong the economic pain.

Iacovone, Javorcik, Keller, Tybout, 20 August 2011

The entry of Wal-Mart into Mexico 20 years ago has reshaped the country’s industrial structure. This column argues that the effect has been polarising. While Wal-Mart’s retailing power has helped more productive companies expand their market shares and boost productivity, the retailer’s pressure to lower prices and innovate has pushed down mark-ups and marginalised less capable producers.

Wyplosz, 19 August 2011

Charles Wyplosz of the Graduate Institute, Geneva, talks to Viv Davies about the Eurozone crisis. He explains why it was a mistake to have bailed out Greece in 2010; they discuss the European Financial Stability Facility, Eurobonds and the possibility of further contagion. Wyplosz presents his views of what must now be done to get ahead of the markets, establish long-term fiscal discipline and resolve the crisis. The interview was recorded on 16 August 2011. [Also read the transcript.]

Meyer, 19 August 2011

Against the backdrop of noise about the damage financial markets can cause, this column focuses on the positives. It presents an analysis of innovation at 1,200 firms worldwide and finds that financial markets usually award a premium to innovative firms, though this premium differs across countries. Economies with more active financial markets have higher innovation – which may be a driver of faster productivity growth.

De Grauwe, 18 August 2011

With the Eurozone crisis casting doubt over the solvency of Spain and Italy, the ECB has once again intervened to provide liquidity in the government bond markets. This column asks the question: Is there such a role for the ECB as a lender of last resort?

Micossi, 18 August 2011

Is the euro a dying patient? This column argues that policymakers need to put up a credible defence, lest they risk the Eurozone altogether. The ECB must be empowered to purchase distressed sovereign debt as the need arises, the EFSF must be able to issue Union-bonds to the scale required to relieve the ECB when required, and the link must be broken between single loans and national public debt.

Farmer, 18 August 2011

One explanation for the 2007-09 global crisis is that consumers, markets, and politicians were gripped by “irrational exuberance” that led them to believe the record-high house prices and stock prices were sustainable. This column proposes a new explanation based on rational behaviour and microeconomic theory. It argues that however high stock prices rise, there is always an equilibrium in which they can rise further.

Hurst, Karabarbounis, Aguiar, 17 August 2011

When jobs are scarce, what else is there to do? This column looks at data from the American Time Use Survey (ATUS) and finds that roughly 30% to 40% of time not spent working is put towards increased “home” production, 30% of time is allocated to increased sleep time and increased television watching, while other leisure activities make up a further 20% of the foregone market work hours.

Boeri, 17 August 2011

Italy is on its third fiscal consolidation package in just six weeks, and none have addressed its credibility crisis. This column argues that Italy’s problems come from its bad politicians, who refuse to learn that structural reforms are necessary. To err is human, but to persevere is diabolical.

Onado, 16 August 2011

The July stress-test results for European banks have prompted a downward spiral of bank stock prices. This column argues that it is time we called the situation a solvency problem and policymakers started getting serious.

Kiguel, 16 August 2011

A decade ago Argentina was in the midst of a severe economic crisis. This column argues that the episode offers lessons for the Eurozone today. Unless Greece takes major steps to improve its competitiveness and growth prospects, the country has little hope to get out of this crisis.

Ivanova, Weber, 16 August 2011

As governments continue their planned spending cuts, this column argues that the short-term effects on growth could be large. But based on its projections for 20 large economies, it says that the international spillovers are likely to be limited – except perhaps for small, open economies.

Suarez, 15 August 2011

The current Eurozone crisis shows no sign of abating. This column proposes a solution built on three pillars: A Eurozone Charter, a Eurobond Programme, and a Debt Restructuring Programme for insolvent countries.

Bornhorst, Ivanova, 15 August 2011

The German current-account surplus peaked at 7½% of GDP in 2007, coinciding with the emergence of imbalances elsewhere. This column argues that these large imbalances in large part reflected a booming world economy rather than structural factors. It adds that any sustainable rebalancing would require an ambitious reform agenda aimed at raising Germany’s potential growth with greater reliance on domestic demand.

Poirson, Weber, 15 August 2011

Europe needs economic growth. Can Germany provide the needed boost? This column argues that such hopes may be in vain. Germany’s role as an independent, short-term engine of growth for Europe is likely to remain limited for the foreseeable future—at least until its policies change.

Neumark, Johnson, Cuellar Mejia, 14 August 2011

The impending retirement of the baby-boom cohort represents the first time in the history of the US that such a large and well-educated group of workers will exit the labour force. Despite the gloomy outlook of recent research, this column suggests there is little likelihood of large-scale skill shortages emerging by the end of this decade.

Jousten, Lefebvre, Perelman, 13 August 2011

Disability-insurance claims have risen in many countries in recent years. As sluggish growth persists, industrial-economy policymakers are likely to turn their attention to economic inactivity. This column examines data from Belgium and lessons from Dutch reforms.

Papaioannou, Vayanos, 13 August 2011

Greece’s bailout plan – agreed more than a year ago – is failing to meet some of its key objectives. This column argues that the ECB, EU, and IMF should be wary of focusing on short-term goals and instead strive for an institutional framework that can drive the long-term growth of the Greek economy.

Bekaert, Ehrmann, Fratzscher, Mehl, 12 August 2011

As financial markets take another turn, this column explores lessons from the global crisis of 2007-2009 and discusses the source and determinants of contagion. It argues that real and financial linkages to the US or the global economy played a relatively minor role. Instead the crisis was a “wake-up call” to investors to pay more attention to countries’ policies and fundamentals.

Corsetti, Müller, 12 August 2011

With sharply rising sovereign risk spreads, few governments can consider their public finances beyond doubt. This column explores the macroeconomic consequences of austerity when sovereign risk is high.

Gros, 12 August 2011

Daniel Gros of CEPS talks to Viv Davies about the recent ECB intervention in the bond markets of Spain and Italy. They discuss the European Financial Stability Facility, Eurobonds, double-dip recession and the unsustainablility of increasing leverage. Gros maintains that only the unlimited firepower of the ECB will stop market panic and that patience and a willingness to endure slow growth is now required in the Eurozone. The interview was recorded on 9 August 2011. [Also read the transcript]

Gros, 11 August 2011

Investors are anticipating the unravelling of the 21 July 2011 “solution” and a breakdown of the interbank-market that would throw the economy into an “immediate recession” like the one experienced after the Lehman bankruptcy. This column argues that this will happen without quick and bold action. The EFSF can’t work as designed but if it were registered as a bank – which would give it access to unlimited ECB re-financing – governments could stop the generalised breakdown of confidence while leaving the management of public debt in the hand of the finance ministers.

Igan, Mishra, 11 August 2011

Did anti-regulation lobbying fuel the subprime crisis? This column shows that there is a strong relationship between financial industry lobbying and favourable financial regulation legislation. It argues that the financial industry fought, and defeated, measures that might have curbed some of the reckless lending practices that many think played a pivotal role in igniting the crisis.

Voth, Ponticelli, 10 August 2011

Governments cutting budget deficits have to consider not just the political reaction of the opposition and the media. A backlash on the streets, in the form of unrest and politically-motivated violence, is a real possibility. This column shows that since 1919, the level of instability has typically risen at the same time as budget cuts are implemented.

Turrini, 10 August 2011

Many says southern Europe's low productivity is at least partly attributable to labour-market dualism. Despite that academic view, none of these economies have replaced existing labour contracts with a single contract. The column describes what the recent reform deal in Portugal might achieve.

Didier, Hevia, Schmukler, 09 August 2011

The global crisis of 2008-09 hit emerging markets nearly as hard as it hit rich countries, which is welcome news compared to previous crises in which emerging markets often suffered much more than developed economies. This column explores emerging economies' growth dynamics since the crisis.

Dadush, Stancil, 08 August 2011

Italy is the latest European country to be the cause of market angst. This column argues that if there is one good thing to come from the recent developments it is that rising Italian interest rates will mean the only options for the Eurozone are the long-term solutions to the crisis: increasing competitiveness in the periphery countries and forming a tighter fiscal union.

Mees, 08 August 2011

As fears mount of another phase in the global crisis, this column points out that despite the growing uncertainty, US Treasury and German Bund yields have actually declined in recent weeks. The reason, it argues, is the global saving glut theory.

Pincus, Robinson, 07 August 2011

As financial markets around the world turn in fear of further government defaults, this column asks what lessons can be taken from a fiscal crisis that occurred over 200 years ago.

Özden, Parsons, Schiff, Walmsley, 06 August 2011

Migration is an issue not helped by misleading statistics and poor data. This column presents a study bringing together over 1,000 national censuses and population registers for 226 countries and regions between 1960 and 2000.

Vines, 05 August 2011

David Vines of Oxford University talks to Viv Davies about the recovery prospects for Greece following the country’s second bailout. They discuss the challenges of asymmetric monetary union, Eurobonds, the peripheral economies and the current situation in Italy. Vines presents the case for stronger fiscal management and political leadership. The interview was recorded on 2 August 2011. [Also read the transcript.]

Hatton, 05 August 2011

The last century has seen dramatic improvements in the health of Europeans. Young adult males are about 11 centimetres taller than their counterparts were a century ago. This column examines and explains the remarkable long-run trends in the average height of Europeans.

Costa-i-Font, Jofre-Bonet, Yen, 04 August 2011

Paying some people to donate blood while others receive a cursory “thanks” has been shown to crowd out the altruistic donors. This column examines data from 15 European countries and finds that while this is the case for monetary rewards, it is not the case for non-monetary rewards.

Doidge, Karolyi, Stulz, 03 August 2011

Over the past two decades, there has been a dramatic change in initial public offering (IPO) activity around the world. The importance of IPOs in the US relative to the world has not kept up with the economic importance of the US. This column analyses nearly 30,000 IPOs from almost 90 countries between 1990 and 2007 to examine why this might be.

Peeters, Groot, 02 August 2011

Fiscal pressure from demographic changes is mounting across the globe. This column asks whether labour markets will create enough jobs. Cross-country comparisons suggest that, until at least 2050, the countries most under pressure will be Poland, Turkey, and Greece.

Sinn, 02 August 2011

With the fire in the Eurozone still burning, this column asks how it started. It highlights three phases in capital flows since the introduction of the euro. First, capital flowed out of Germany to the booming periphery countries. Second, as the crisis hit, TARGET2 caused a forced capital export from the Bundesbank . Third, public capital flows, which again rely on money from Germany, have only just begun.

Ashraf, Galor, 01 August 2011

The reasons given for the vast divide in standard of living between different parts of the world are many, with some economic historians claiming the roots lie in the colonial period. This column goes back even further to the cradle of humankind in East Africa, suggesting that the genetic diversity of the tribes that dispersed to different parts of the globe determined their success many thousands of years later.


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