Global crisis

Sanjiv Das, Kris Mitchener, Angela Vossmeyer, 11 March 2019

The Global Crisis brought attention to how connections among financial institutions may make systems more prone to crises. Turning to a major financial crisis from the past, this column uses data from the Great Depression to study risk in the commercial banking network leading up to the crisis and how the network structure influenced the outcomes. It demonstrates that when the distribution of risk is more concentrated at the top of the system, as it was in 1929, fragility and the propensity for risk to spread increases.

Natasha Kalara, Lu Zhang, Karen van der Wiel, 09 March 2019

The Global Crisis has profoundly changed the financial landscape, including firm financing. This column examines the development of various channels of firm financing before and after the crisis among four groups of EU countries, the US, and Japan. While bank finance and, to some extent, equity finance are under pressure, alternative finance, although small, seems to be on the rise.

Christian Keuschnigg, Michael Kogler, 04 March 2019

Only strong banks can fulfil their Schumpeterian role by efficiently reallocating credit. The column argues that high capital standards, efficient bankruptcy laws, and a lower cost of bank equity improve credit reallocation and thereby support the productive specialisation of the economy. An efficient banking sector also magnifies the gains from trade liberalisation by easing the process of capital reallocation.

Gaston Gelos, Federico Grinberg, Shujaat Khan, Tommaso Mancini-Griffoli, Machiko Narita, Umang Rawat, 28 February 2019

There is little evidence on whether deteriorating household balance sheets in advanced economies have made monetary policy less effective since the Global Crisis. Using US household-level data, this column shows that the responsiveness of household consumption to monetary policy has in fact diminished since the crisis, and that households with the highest indebtedness responded the most to monetary policy shocks. Since the distribution of debt did not change after the crisis, this suggests that household debt did not contribute to lessening the effects of monetary policy over time. 

Francesco Bianchi, Diego Comin, Howard Kung, Thilo Kind, 26 February 2019

During the Great Recession, several European countries implemented fiscal austerity measures to reduce sovereign debt. This column argues that such policies affect the decision to adopt new technologies and can have negative consequences for productivity and growth in the medium run. Thus, low technology adoption due to fiscal austerity can lead to slow recoveries. These, in turn, can make the fiscal stabilisation unnecessarily costly. Fiscal austerity is desirable only if it is able to reduce the cost of financing debt quickly.

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