Global crisis

Sean Dougherty, Pietrangelo de Biase, 26 October 2021

Following the global financial crisis, subnational governments engaged in pro-cyclical fiscal policy by reducing investment, drawing out the recovery. This column presents evidence suggesting that the Covid crisis has impacted the fiscal positions of subnational governments in the OECD far less than the previous crisis, which should mitigate this tendency towards pro-cyclicality. This is partly the result of central governments having provided substantial fiscal support, while at the same time subnational governments have relied heavily on relatively stable revenues from recurrent taxes on immovable property which, unlike in the previous crisis, are not expected to decline due to a housing market crash.

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.

Alex Bryson, David Blanchflower, 24 August 2021

When Queen Elizabeth II asked economists why none of them had seen the Great Recession coming, they presented her with a number of reasons but forgot to mention the main one: they hadn’t paid attention to ‘red lights’ that had been flashing in the qualitative survey data from consumers and producers that predicted the downturn. Chief among these was the fear of unemployment which, as this column shows, predicts upticks in unemployment 12 months ahead.

Rui Esteves, Seán Kenny, Jason Lennard, 20 July 2021

There is little consensus on the macroeconomic impacts of sovereign debt crises, despite the regularity of such events. This column quantifies the aggregate costs of defaults using a narrative approach on a large panel of 50 sovereigns between 1870 and 2010. It estimates significant and persistent negative effects of debt crises starting at 1.6% of GDP and peaking at 3.3%, before reverting to trend five years later. In addition, underlying causes matter. Defaults driven by aggregate demand shocks result in short-term contractions, whereas aggregate supply shocks lead to larger, more persistent losses. 

Juan Jose Cortina Lorente, Tatiana Didier, Sergio Schmukler, 18 June 2021

The recent expansion in global corporate debt has occurred not only in one but in several debt markets, notably bonds and syndicated loans. This column argues that firms obtain financing in several debt markets and this more diversified corporate debt composition might help them mitigate the impact of supply-side shocks. Contrary to common beliefs, debt financing did not necessarily halt during crises because firms from advanced and emerging economies shifted their capital raising activity between bonds and syndicated loans as well as between domestic and international markets. These market switches, conducted mostly by large firms, impacted the amount of debt borrowed, the borrowing maturity, and the debt currency denomination, within firms and at the aggregate level. Overall, debt markets need to be analysed jointly to obtain a more complete picture of who is borrowing at different points in time and how overall corporate debt is evolving.

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