Biagio Bossone, 11 February 2011

In the years leading up to the global crisis, the IMF routinely failed to detect the vulnerabilities that brought the global economy to its knees – even once the turmoil had begun. How could the organisation mandated to oversee international finance stability have been so blind? Here one of the contributors to the Independent Evaluation Office report speaks in his own capacity about the failings of the IMF.

Atif Mian, Francesco Trebbi, Amir Sufi, 10 February 2011

Several academics, policymakers, and regulators emphasise the role of foreclosures in the Great Recession and subsequent global crisis. This column provides one of the first attempts to show this empirically. Using micro-level data from all US states, it shows that foreclosures had a significant negative effect on house prices, residential investment, durable consumption – and consequently the real economy.

Romain Rancière, Michael Kumhof, 04 February 2011

Of the many origins of the global crisis, one that has received comparatively little attention is income inequality. This column provides a theoretical framework for understanding the connection between inequality, leverage and financial crises. It shows how rising inequality in a climate of rising consumption can lead poorer households to increase their leverage, thereby making a crisis more likely.

Cristina Cella, Andrew Ellul, Mariassunta Giannetti, 08 January 2011

As stock markets plummeted, short-sellers and hedge funds have been the subject of public anger. But does it matter who owns stock? This column compares stock performance after the collapse of Lehman Brothers in 2008. It finds that companies whose shares are held to a larger extent by short-term investors do indeed experience more severe price drops and larger price reversals.

Richard Baldwin, 25 December 2010

Vox takes its annual break between 25 December 2010 and 2 January 2011. This column documents the coevolution of VoxEU and the global economic crisis since June 2007. It also highlights a few columns that readers should read (or re-read) in preparation for the Eurozone’s next crisis.

Charles Calomiris, Inessa Love, Maria Soledad Martinez Peria, 11 December 2010

Autumn 2008 was calamitous for global equities. This column presents data on stock returns from over 17,000 firms in 44 countries suggesting that the decline in share prices was associated with three separate and identifiable “shock factors”: the fall in global demand, the contraction of credit supply, and the selling pressure on equity as investors were forced to unload some of their holdings.

Joshua Aizenman, Yothin Jinjarak, 04 December 2010

What factors determined the fiscal expansion seen in many developed countries in 2009? This column finds that greater de facto fiscal space prior to the global crisis, higher GDP per capita, more financial exposure to the US, and lower trade openness were all associated with a larger fiscal stimulus relative to GDP and that more open economies may have relied more on exchange-rate depreciation.

Nicholas Crafts, Peter Fearon, 23 November 2010

The global crisis has been frequently compared to the Great Depression. The recession of 1937 has been less widely discussed. This column asks what lessons it can teach today’s policymakers. Its key message is that while fiscal consolidation should not be postponed, the exit strategy needs to focus on providing monetary support for aggregate demand as fiscal stimulus is withdrawn.

Paul Krugman, 18 November 2010

Debt is the crux of advanced economies’ current policy debates. Some argue for fiscal expansion to avoid recession and deflation. Others claim that you can’t solve a debt-created problem with more debt. This column explains the core logic of a new model by Eggertsson and Krugman in which debt shocks and policy reactions can be examined. Relying on heterogeneous agents, the model naturally produces the paradox of thrift but also finds new supply-side paradoxes, those of toil and flexibility. The model suggests that most economists have been misthinking the issues and that actual policy in the US and EU is misguided.

Ajai Chopra, Bas Bakker, 16 November 2010

The crisis in Europe is more commonly used to refer to debt crises in southern Europe than elsewhere. This column focuses on central and eastern Europe, arguing that while the crisis there was triggered by external shocks, it is clear that domestic imbalances and policies also played a key role.

Jean Imbs, 10 November 2010

What makes the global crisis global? This column argues that the interdependence of the global economy, brought about by financial linkages between developed countries as well as goods trade ties with developing countries, has made the global crisis the first global recession in decades.

Nicolas Véron, 26 October 2010

For whom is the financial crisis over? This column argues that the US response has been far more effective at reassuring investors than that in Europe. It says that stress tests have failed to trigger the needed recapitalisation and restructuring of Europe’s troubled banks. Europe’s leaders, it argues, must tackle these problems head-on.

Joshua Aizenman, Jaewoo Lee, Vladyslav Sushko, 22 October 2010

Exchange-rate policy is emerging as one of the most controversial issues from the global crisis. This column looks at how emerging markets have responded to exchange-rate pressures over the last decade. Among its findings is that emerging markets’ hoarding of international reserves is far better explained by financial factors than by trade concerns, both before and during the crisis.

Viral Acharya, Thomas Cooley, Matthew Richardson , Richard Sylla, Ingo Walter, 24 November 2010

Of the recent reforms to make financial systems more robust, the US Dodd-Frank Wall Street Reform and Consumer Protection Act stands out. Despite being broadly in favour of its proposals, this column identifies flaws in its design that fail to deal with the main causes of the crisis and that will lead to further implicit government guarantees.

Dirk Schoenmaker, 18 October 2010

The financial crisis has shown that countries put national interests first. On the banking side, the handling of Fortis, Lehman and the Icelandic banks are clear examples of coordination failure. On the sovereign side, the Greek saga illustrates the damage of ad hoc attempts to coordinate. This column explores how burden sharing can be made to work in practice.

Christian Daude, Ángel Melguizo, Alejandro Neut, 08 October 2010

How well prepared were Latin American countries for the global crisis? This column uses two decades of data from the region to argue that, just as inflation-targeting rules institutionalised robust monetary policy and helped to curb rises in the price level, countercyclical fiscal policy must be institutionalised to be effective and sustainable. Chile, it says, is leading the way.

Paolo Angelini, Andrea Nobili, 03 October 2010

Financial markets were in a state of fear during the summer of 2007. The spread between interest rates on unsecured and secured deposits recorded an unprecedented rise. This column examines trading data from European banks to argue that the widening spread was driven by aggregate factors – risk aversion and accounting practices – rather than bank-specific concerns.

Salvador Barrios, Sven Langedijk, Lucio R Pench, 02 October 2010

Europe’s policymakers are trying to balance fiscal consolidation with economic recovery. This column examines financial crises in EU and OECD countries from 1970 to 2008 and finds that countries facing high debt levels or those at risk of low GDP growth would be better off with quick, “cold-shower” fiscal consolidations. Other countries might benefit from a more gradual approach.

Karen-Helene Ulltveit-Moe, Andreas Moxnes, 01 October 2010

The great trade collapse during the global crisis has opened a new chapter in trade debate. This column uses evidence from a real-exchange-rate shock in Norway to show how firms initially slowed down or postponed the introduction of new products to the market. It argues that this sort of response suggests a long and difficult recovery from the global trade collapse – unless policymakers intervene.

Elisa Gamberoni, Erik von Uexkull, Sebastian Weber, 29 September 2010

How do trade and labour market institutions affect employment during a crisis? This column finds that trade openness leads to sharper drops in employment, but also faster recoveries. High severance pay dampens employment contraction and very high unemployment benefits are associated with a stronger contraction. These findings suggest that global employment is set to remain stagnant for 2010 before recovering in 2011.

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