Financial markets

Maurice Obstfeld, 15 October 2021

Even after their role in the global financial crisis, globalised, minimally regulated financial markets are still regarded as inevitable and, on balance, good for us. Maurice Obstfeld of Berkeley tells Tim Phillips about the short but action-packed history of financial globalisation and asks whether we should be rethinking this aspect of capitalism too.

Read more about the research presented and download the free discussion paper:

Obstfeld, M. 2021. 'The Global Capital Market Reconsidered'. CEPR

Filippo Gori, 07 October 2021

Once again, the US finds itself in the midst of a debt ceiling crisis, but what can we learn from previous instances? This column assesses the impact of the 2011 US debt ceiling crisis on US federal government credit risk and on US banks’ funding costs. It estimates that during the first two quarters of 2011, as a result of the disagreement between Republicans and Democrats over the rise in the US debt ceiling, US government credit default swaps increased by 46 basis points, while bank funding costs increased by about 18 basis points.  

Raphael Auer, David Tercero-Lucas, 06 October 2021

Some see cryptocurrencies as a potential substitute for fiat money and commercial banking, a new form of exchange resistant to debasement and censorship by governments and financial institutions. This column examines whether cryptocurrency investors are motivated by distrust in fiat currencies or regulated finance, and finds that investors show no differences from the general population in their level of security concerns about either cash or commercial banking services. Cryptocurrency investors tend to be educated and young and to be digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged.

John Duca, John Muellbauer, Anthony Murphy, 13 September 2021

Research on house price cycles and their interactions with the economy has burgeoned since the Global Financial Crisis. This column draws five lessons from a recent comprehensive survey. It argues that conventional theories of house price dynamics are misleading. Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.

Emanuel Moench, Tobias Stein, 12 September 2021

The US equity market follows a V-shaped pattern around recessions, with sharply negative returns heading into recessions and a strong recovery as the recession unfolds. In addition, recessions are usually preceded by an inverted yield curve. This column shows that the term spread is a robust predictor of recessions, and that model-implied recession probability forecasts do a good job of predicting the equity premium out-of-sample. An investment strategy based on the recession probability model could be used to time the equity market and lead to higher and less volatile profits over time.

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