Global economy

Eugenio Cerutti, Haonan Zhou, 09 February 2018

Chinese banks have continued to expand rapidly both domestically and abroad. Together, they constitute the largest banking sector in the world by far. This column places the Chinese banking system in a global context. Although very small relative to their domestic claims, Chinese banks’ foreign claims are substantial for many borrower countries in Asia, Africa, and the Caribbean in particular. Many of these banking connections are related to Chinese outward foreign direct investment, with fewer related to trade linkages.

Emmanuel Farhi, Matteo Maggiori, 20 December 2017

The US has been leveraging itself in recent decades, piling up public and external debt – a trend that could jeopardise the special position the dollar occupies in the international monetary system. This column argues that the US is risking another ‘Triffin’ event, in the form of a confidence crisis and a run on the dollar. The current situation echoes that of the UK in the 1920s and the US in the 1960s. The crises that ended both episodes marked dramatic turning points in the history of the international monetary system.

Laura Nowzohour, Livio Stracca, 15 December 2017

At an intuitive level, economists and non-economists alike find it plausible that economic sentiment and economic developments are related. This column surveys recent theoretical and empirical work on the role of sentiment as a driver of the business cycle. Sentiment measures are found to be weakly correlated at the country level, but highly correlated across countries. Further, sentiment seems most closely correlated with economic and financial variables, and tends to be forward looking.

Lutz Kilian, Xiaoqing Zhou, 09 November 2017

Global commodity prices surged across the board after 2003, with some observers claiming that this reflected a permanent increase in global real economic activity. This column argues that this was a persistent but transitory phenomena tied to rising commodity demand from Asia. It presents evidence of a global economic slowdown since 2011, with low real commodity prices likely to persist.

Stephen Cecchetti, Kim Schoenholtz, 03 November 2017

Black Monday has been referred to as the first contemporary global financial crisis. This column reviews key aspects of the 1987 crash and discusses the subsequent steps taken to improve the resilience of the financial system. It also highlights a key lingering vulnerability – the lack of a mechanism for managing the insolvency of critical payment, clearing, and settlement institutions.

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