Muhammad Cheema, Robert Faff, Kenneth Szulczyk, 25 July 2020

The COVID-19 pandemic has severely impacted the financial markets, which has triggered a flight from risky assets to safe haven assets. This column compares the performance of the safe havens across the world’s ten largest economies during COVID-19 and the 2008 Global Financial Crisis. The findings suggest that the character of safe haven assets has changed since the 2008 crisis. Gold, the traditional safe haven asset, has lost its glitter. However, the Swiss franc, the US dollar and US Treasuries retained their safe haven status, and Tether, a cryptocurrency, shows some promise.

Robin Greenwood, Samuel G. Hanson, Andrei Shleifer, Jakob Ahm Sørensen, 15 July 2020

There is a long-standing debate on whether financial crises can be predicted. This column draws on a chronology of past financial crises and data on credit and asset prices for a panel of 42 countries between 1950-2016 and finds that if there is a large credit expansion with an asset price boom, then financial crises are highly predictable. These results are used to motivate a simple indicator that identifies periods of potential credit-market overheating. The indicator is shown to predict past crises in advance, suggesting that policymakers have time to act and take prophylactic policy interventions.

Marco Buti, 13 July 2020

Both the severity of the recession in Europe in 2020 and the subsequent bounce back of economies are likely to differ markedly across member states. Avoiding that the current crisis risks will be remembered as the Great Fragmentation is a key goal of the EU strategy. This column looks at the lessons learned during the financial crisis, and argues that a more consensual narrative, the lower risks of moral hazard and the rising political awareness that Europe has to count on ‘indigenous’ growth drivers provide a better chance of adopting an ambitious EU policy response. Whether it will also lead to deeper political integration, will depend on finalising long-lasting open institutional 'chantiers' such as Banking Union and Capital Markets Union.  

Nicolas Gonne, Olivier Hubert, 08 July 2020

The shutdown of passenger air travel at the height of the COVID-19 pandemic slowed the spread of the disease but caused major economic losses for the sector. This column presents a cost-benefit analysis of the global freeze of passenger air traffic. While any conclusion is highly dependent on a handful of factors, including the controversial and difficult-to-calculate ‘value of a statistical life’, the simulations provide useful anchoring points at a time when governments are contemplating reopening air routes, as well as in the face of a potential second wave of infections.

Martin Götz, Luc Laeven, Ross Levine, 07 July 2020

Banks with more equity tend to lend more, create more liquidity, have higher probabilities of surviving crises and if they do, they tend to recover faster. The degree to which a bank issues new stock to replenish bank equity in response to a crisis is therefore crucial. This column shows that ownership structure is an important determinant of a bank’s new stock issuance during a crisis. US banks with greater insider ownership are found to have had significantly less common stock sales following the onset of the 2008 Global Crisis.

Robert Gilhooly, Carolina Martinez, Abigail Watt, 22 June 2020

China has implemented a wide range of measures to support the economy through the ongoing coronavirus shock. This column examines China’s policy response, and suggests that the recent loosening in financial conditions should support activity over the next six to nine months, but it will only be at best half that seen in 2016 and a third of that after the Global Crisis given the relative change in financial conditions thus far. Moreover, the policy levers are at best only 40% of that deployed during the Global Crisis. This contrasts with the approach of many other countries, which have reacted more aggressively to the coronavirus shock. 

Dirk Niepelt, Martín Gonzalez-Eiras, 05 June 2020

The COVID-19 shock has changed the discipline of economics in that it has brought an interest in epidemiology into the foreground of economic analysis. This column explores how traditional models of infectious diseases can be combined with an additional economic layer on top. This hybrid approach can help draw accurate predictions for the long run impact of the crisis, without substantive loss in terms of ‘realism’ or flexibility.

Anil Ari, Sophia Chen, Lev Ratnovski, 30 May 2020

Non-performing loans are a crucial policy consideration, especially in times of wider economic crisis. This article uses a new database covering 88 banking crises since 1990 to draw lessons for post-COVID-19 resolution of non-performing loans.  Compared to the 2008 crisis, the pandemic poses some different challenges. Despite some respite from the credit-crash of 2008, policymakers today are faced with substantially higher public debt, less profitable banks, and often weaker corporate sector conditions, making resolution of non-performing loans even more challenging.

Alina Kristin Bartscher, Moritz Kuhn, Moritz Schularick, 18 May 2020

Household debt-to-income has quadrupled in the US since WWII. This column presents historical evidence suggesting that debt-to-income ratios have risen most dramatically for middle-class households with low income growth. Middle-class households have increasingly tapped into rising housing wealth to finance spending in excess of income. Home-equity based borrowing accounts for 50% of the increase in US housing debt and turned the middle-class into the epicentre of financial fragility. 

Thorsten Beck, Deyan Radev, Isabel Schnabel, 12 May 2020

Bank resolution regimes designed to deal with idiosyncratic bank distress have been widely established or upgraded over the last decade. This column shows however, that more comprehensive resolution regimes may increase systemic risk in response to a system-wide shock. Hence, bank resolution regimes may benefit from a macroprudential design, including a strictly defined financial stability exemption for bail-in rules during periods of systemic distress.

Fredrik N G Andersson, Lars Jonung, 08 May 2020

Negative interest rates were once seen as impossible outside the realm of economic theory. However, recently several central banks have imposed such rates, with prominent economists supporting this move. This column investigates the actual effects of negative interest rates, taking evidence from the Swedish experience during 2015-2019. It is evident that the policy’s effect on the inflation rate was modest, and that it contributed to increased financial vulnerabilities. The lesson from the experiment is clear: Do not do it again.

Nicholas Bloom, Fatih Guvenen, Sergio Salgado, 05 May 2020

During recessions, some firms and industries get hit far harder than others. This column argues that the current COVID-19 crisis is no exception. While most firms have experienced a negative demand shock, firms in the entertainment, services, and manufacturing sector have experienced a dramatic decline in sales that is likely to persist over several months. The increase in the probability of firm-level disasters or, more precisely, the decrease in the skewness of the distribution of firms’ shocks, will play a significant role in the response of aggregate output and employment. 

Marcin Kolasa, Grzegorz Wesołowski, 01 May 2020

Several major central banks announced new rounds of massive asset purchases following the outbreak of the Covid-19 pandemic. This policy instrument seems to have performed well for economies that have been implementing it since the Global Crisis, but its spillover impact on external countries has remained a bone of contention within the policy debate. Using previous episodes of quantitative easing as a guideline, this column analyses its international spillovers, showing that they are qualitatively and quantitatively different from the impact of changing short-term rates by the major central banks.

Nicola Pierri, Yannick Timmer, 18 April 2020

Technology adoption in lending can enhance financial stability through the production of more resilient loans. Motivated by the recent surge of FinTech lending, this column analyses the implications of lenders' information technology adoption for financial stability. Banks that adopted IT more intensely before the Global Crisis were significantly more resilient when the shock hit. These banks had significantly fewer non-performing loans, and issued more loans during the crisis itself. Loan-level analysis indicates that high IT adoption banks issued mortgages with better performances and did not offload low-quality loans.

Daniel Levy, Tamir Mayer, Alon Raviv, 01 April 2020

Economists and finance scholars faced harsh criticism for failing to anticipate the 2008 financial crisis. This column presents evidence from textual analyses of 14,270 working papers published between 1999–2016 that is consistent with this criticism. However, as soon as the crisis unravelled, economists appeared to dramatically increase their efforts in studying and understanding the crisis, its causes and its consequences.

Zuzana Fungáčová, Eeva Kerola, Laurent Weill, 28 March 2020

Trust in banks is a core determinant of financial system effectiveness. While it is well-established that trust in banks fell sharply following the Global Crisis and affected individual decision-making and risk preferences, the longer-term impact of banking crises on trust in banks has not yet been explored. This column looks at the effect of experiencing a banking crisis on people’s long-term confidence in banks. It shows that living through a banking crisis diminishes trust in banks, especially for more mature individuals, and that the loss of trust is long-lasting. 

Martin Hodula, 16 March 2020

The shadow banking system has become an important source of funding worldwide for the real economy over the last two decades. Europe is no exception, though research on shadow banking there has been relative scarce. This column shows that European shadow banking is highly procyclical, intertwined with insurance corporations and pension funds, and a terminal station for regulatory arbitrage. It also discusses the existence of two main motives that explain the growth of shadow banking, both prior and post-Global Crisis: a funding-cost motive and a search-for-yield motive. 

Henrik Müller, 14 March 2020

The coronavirus crisis is hitting economies hard. This column argues that policymakers risk doing too little too late – and creating plenty of confusion on the way. It also suggests some lessons that can be learnt from the response to the last crisis.

Giovanni Dell'Ariccia, Deniz Igan, Paolo Mauro, Hala Moussawi, Alexander F. Tieman, Aleksandra Zdzienicka, 04 March 2020

During the Global Crisis, governments rescued banks with capital injections, asset purchases, and guarantees. Until now, we have had no clear idea what happened to that taxpayer money. This column uses bank-level data to compile a comprehensive accounting of the costs of, and returns on, these interventions. While initial public support cost $1.6 trillion, the total fiscal impact has been $250 billion – on average less than 1% of GDP.

Ugo Albertazzi, Francesca Barbiero, David Marques-Ibanez, Alexander Popov, Costanza Rodriguez d'Acri, Thomas Vlassopoulos, 25 February 2020

The response of major central banks to the Global Crisis has rekindled the debate on the interactions between monetary policy and financial stability. This column reviews empirical evidence on how monetary policy affects bank stability, focusing on unconventional monetary policy measures deployed by the ECB during the crisis. It argues that by stabilising the economy and averting a systemic crisis, these measures helped shore up stability, with the positive effects outweighing the adverse spillovers on banks’ intermediation capacity and risk-taking. However, such measures may need to be complemented with counterbalancing actions that go beyond monetary policy. 

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