William Wheaton, 26 September 2010

Recent estimates suggest as many as 23% of US mortgages are “underwater” –the value of the home collateralising the mortgage has fallen below the loan’s balance. This column outlines a proposal to remove the threat of strategic default in these cases – one that it argues is not only fair but also the most likely to allow the US housing market to recover.

Mark Cassell, Susan Hoffmann, 22 September 2010

While many policymakers concerned with suppressing the global crisis are looking to the Great Depression as a guide, this column suggests that many are missing a trick. In a new book, the authors argue that the Federal Home Loan Bank, set up to solve the financial crises of the 1930s, is an unparalleled source of housing finance expertise which, with reform, could be vital to policymakers today.

André Meier, 21 September 2010

What happens to inflation during a downturn? This column documents the behaviour of inflation during 25 episodes of persistent large output gaps in 14 advanced economies over the last 40 years. It finds that such episodes bring about significant disinflation, although inflation tends to bottom out at low positive rates. Recent developments in advanced economies appear consistent with this disinflationary effect.

Mathias Dolls, Clemens Fuest, Andreas Peichl, 17 September 2010

While debate rages over the appropriate size and timing of fiscal expansions, this column points out that much less attention is devoted to role of the automatic stabilisers in the tax and transfer system. It compares these stabilisers in Europe and the US, finding that social transfers play a key role in the stabilisation of disposable incomes and consumer demand.

Robert Inman, 15 September 2010

What can we learn from US President Obama’s fiscal stimulus? This column argues that channelling the stimulus package through state governments exposed it to agency costs, free-riding problem, and political expediency. As a result, the stimulus has failed to meet its objectives at the state level. The lesson is that fiscal stimulus should be conducted centrally.

Avinash Persaud, 14 September 2010

The role of financial institutions in the global crisis has led to a consensus that financial regulation must change. This column argues that the banking lobby, far from depleted, has struck back with a vengeance. It has managed to postpone the much needed regulation for a time when the need for it will be forgotten.

Carmen Reinhart, Vincent Reinhart, 13 September 2010

Is the global economic recovery about to grind to a halt? This column provides evidence on economic performance in the decade after a macroeconomic crisis. It finds that growth is much slower and as well as several episodes of “double dips”. It adds that many of these economies experience plain “bad luck” that strikes at a time when the economy remains highly vulnerable.

Paul Seabright, 10 September 2010

Paul Seabright of the Toulouse School of Economics talks to Romesh Vaitilingam about his book ‘The Company of Strangers: A Natural History of Economic Life’, recently issued in a revised version, which applies the ideas about social trust and social fragility to the financial crisis. Among other things, he outlines the three lessons mistakenly learned from the experience of the 1930s. The interview was recorded at the annual congress of the European Economic Association in Glasgow in August 2010.

Kenneth Snowden, 10 September 2010

Was the subprime crisis inevitable? This column looks at how the last mortgage crisis in the 1930s shaped the policy landscape in the US, arguing that it eventually led to the emergence of private securitisation in the 1990s, a surge in homebuilding and homeownership, and a second great mortgage crisis that was just around the corner.

Timothy Hatton, 09 September 2010

The recent recession that followed the global crisis has often been compared with the Great Depression. This column argues that an important but neglected lesson from that period is that policymakers should be firmly focused on fostering labour market flexibility and maintaining the employability of those out of work, rather than on short fixes that actually cause unemployment to persist.

Richard Grossman, Masami Imai, 07 September 2010

One of the striking features in the buildup to the global crisis was the extent of risk taken on by highly leveraged financial institutions. This column blames such behaviour on the limited liability status of these institutions. Using data on British banks from 1878 to 1912, it finds that the banks with greater liability for their debts took on less risk.

Yeon-Koo Che, Rajiv Sethi, 04 September 2010

The role of naked credit default swaps in the global crisis is an ongoing source of controversy. This column seeks to add some formal analysis to the debate. Its model finds that speculative side bets can have significant effects on economic fundamentals, including the terms of financing, the likelihood of default, and the scale and composition of investment expenditures.

Anton Brender, Florence Pisani, 04 September 2010

Are low interest rates storing up more trouble for the future? This column argues that low interest rates have been necessary to sustain large current-account imbalances. With global imbalances unlikely to be redressed any time soon, low interest rates may be the best option for a while longer – but this policy is not without its risks.

Alan Auerbach, Yuriy Gorodnichenko, 03 September 2010

The return from a fiscal stimulus – the fiscal multiplier – remains one of the most controversial topics in economics today. This column considers the influence of expectations, of variation in recessions and expansions, and of different components of government spending. It finds that the size of the multiplier varies considerably over the business cycle: between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.

Carmen Reinhart, Kenneth Rogoff, Rong Qian, 31 August 2010

Are declarations of victory against the global crisis premature? This column argues that “graduation” – the emergence from recurrent crisis bouts – is a long and painful process which neither developed nor developing countries look close to completing. Two centuries of evidence suggests that most countries need 50 years before the chances of further crises subside.

Edward Glaeser, Joshua Gottlieb, Joseph Gyourko, 28 August 2010

The debate over the cause of the US housing boom and bust is far from concluded. This column questions the explanation that low interest rates were a critical factor, arguing that it sits uneasily alongside theories of household behaviour and historical evidence. With the causes remaining uncertain, the authors call for more research in this area.

Mona Haddad , Ann Harrison, Catherine Hausman, 27 August 2010

The great trade collapse that accompanied the global crisis was historically severe. This column presents evidence from several countries suggesting that the great trade collapse was more concentrated along the intensive margin – the reduction in the value of goods already being traded – providing hope that trade may recover sooner than feared.

Ralph De Haas, Neeltje van Horen, 25 August 2010

The subprime crisis and subsequent global crisis have brought bank finances firmly to public attention, with many calling for stronger regulation. This column argues that the subprime crisis offered a “wake-up call” for banks, prompting them to screen and monitor their corporate borrowers more carefully without the need for more regulation. This may have contributed to the subsequent reduction in corporate lending.

Stephen Cecchetti, Benjamin Cohen, 20 August 2010

The extent of the damage from the global crisis has forced policymakers to rethink how they regulate finance. This column first examines the long-term impact of stronger capital and liquidity requirements and then estimates the transitional economic impact as the new standards are phased in. It argues that, while such reforms may come at a short-term cost, the benefits of a stronger and healthier financial system will be around for years to come.

Jan van Ours, Bas van der Klaauw, 19 August 2010

Rising unemployment has forced policymakers to look for ways to get the unemployed back to work – to raise the “reemployment” rate of the unemployed. This column provides new evidence from the Netherlands suggesting that the stick of benefit sanctions is much more effective than the carrot of reemployment bonuses.

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