Viral Acharya, Matthew Richardson, 24 January 2010

Obama’s sweeping proposal for financial regulation took the world by surprise. Here two of the world’s leading professors of finance explain why it is step in the right direction from the standpoint of addressing systemic risk. They also point out a number of drawbacks that should be fixed.

Axel Leijonhufvud, 23 January 2010

What happened to the capitalist system where everyone was supposed to pay for their own mistakes? Bankers have been playing “I win, you lose” with the general public. This column suggests a return to double liability for bank managers in an attempt to change the game to “If I lose, then I have to pay.”

Ricardo Caballero, 14 January 2010

Global imbalances have been suggested as the root cause of the global crisis. This column argues that another imbalance is the guilty party. The entire world had an insatiable demand for safe debt instruments that put an enormous pressure on the US financial system and its incentives. This structural problem can be alleviated if governments around the world explicitly absorb a larger share of the systemic risk.

Max Corden, 13 January 2010

This new CEPR Policy Insight suggests that the 'Keynesian ambulance' of fiscal stimuli in response to the crisis may have averted a Great Depression.

Max Corden, 13 January 2010

The world economy has had a heart attack. “Ambulance economics” is about the immediate reanimation process, i.e. the fiscal stimulus. This column introduces a new CEPR Policy Insight that reviews practical aspects of fiscal stimulus policies, noting especially the inevitable trade-offs involved. It discusses the relationship between a long-term public debt problem caused usually by demographic factors and the need for short-term fiscal stimulus for Keynesian reasons. Also, it analyses critically seven common arguments against fiscal stimuli.

Lucian Cernat, Nuno Sousa, 09 January 2010

What is the impact of crisis-led protectionism on trade? This column provides a new way to interpret protectionism – the “Russian doll” effect – and shows that the effect on EU exports has been more severe than the rest of the world.

Pablo Guidotti, 08 January 2010

Pablo Guidotti, Director of the School of Government at the Universidad Torcuato Di Tella and former deputy minister of finance in Argentina, talks to Romesh Vaitilingam about the challenges facing monetary and fiscal policy-makers as they plan their exit strategies from the extraordinary measures taken to deal with the global crisis. The interview was recorded at the Global Economic Symposium in Schleswig-Holstein in September 2009.

Jürgen von Hagen, Ludger Schuknecht, Guido Wolswijk, 21 December 2009

Spreads on government bonds in the EU15 have risen dramatically since the Lehman default in September 2008. This column shows that financial markets’ reactions were not random but rather reflect an intensification of risk concerns, especially regarding the state of public finances. German bonds have acquired a ‘safe-haven' status that they did not have before.

Dirk Schoenmaker, 19 December 2009

Current practice of national crisis resolution is threatening the EU’s single banking market. The financial trilemma suggests that policymakers can only choose two out of the following three objectives: financial stability, financial integration, and national financial policies. This column argues that EU burden-sharing rules among governments can save the single market.

Jonathan Portes, 19 December 2009

A strong financial sector is essential to a modern economy, but private actions can impose enormous costs on taxpayers; a balance must be struck. This column explains why the UK Government believes that there is a case for increasing the costs of risk-taking to banks and their shareholders while reducing those borne by taxpayers.

Nicholas Dorn, 18 December 2009

Many observers blame regulatory failure for the financial crisis, arguing for closer international coordination of national regulation. This column argues for the opposite. Regulatory convergence creates instability. Instead, regulatory diversity is needed to reduce market herding and the resulting systemic risks. This diversity can be achieved through stronger democratic oversight of regulators.

Pierre-Olivier Weill, Guillaume Rocheteau, Ricardo Lagos, 16 December 2009

Following the last run on a British bank over 130 years ago, Walter Bagehot argued that central banks should act as a lender of last resort. While such policies have been followed by central banks in today’s crisis, this column updates the recommendation by suggesting central banks should also act as a “liquidity provider of last resort”.

Jim O'Neill, 11 December 2009

Jim O’Neill, head of global economic research at Goldman Sachs, talks to Romesh Vaitilingam about the crisis and its impact on the emerging giants of the world economy, the BRICs (Brazil, Russia, India and China). They also discuss the value of economic research in both the commercial and academic spheres, and how the economics profession has come out of the crisis. The interview was recorded in London in September 2009.

Alejandro Izquierdo, Ernesto Talvi, 12 December 2009

In spite of its global nature, the current crisis dealt a much smaller blow to emerging markets than its predecessor, the Russian/Long-Term Capital Management crisis of 1998. Although stronger fundamentals are part of the explanation, this column argues that the readiness of the international community to provide lender of last resort facilities played a key role and has major implications for the design of a new international financial architecture.

Alan M. Taylor, Moritz Schularick, 08 December 2009

Are credit bubbles dangerous? This column presents long-run historical data showing that, over the past 140 years, episodes of financial instability were often the result of "credit booms gone wrong". Recent years witnessed an unprecedented expansion in the role of credit in the macroeconomy. It is a mishap of history that – just as credit matters more than ever before – the reigning doctrine gives it no role in central bank policies.

Demetrios Papademetriou, 04 December 2009

Demetrios Papademetriou, president and co-founder of the Migration Policy Institute in Washington DC, talks to Romesh Vaitilingam about the key elements of wise migration policy both at a time of economic crisis and for the longer term. The interview was recorded at the Global Economic Symposium in Schleswig-Holstein in September 2009.

Prakash Kannan, Fritzi Koehler-Geib, 03 December 2009

The subprime crisis became the global crisis when the 2007 financial shock mutated into a full-blown global economic crisis in September 2008. This column attributes the rapid transmission of financial stress to the surprise of the crisis. Using historical data, it shows that crises with a pronounced surprise element tend to result in more widespread contagion.

Axel Leijonhufvud, 21 November 2009

Economics lacks an anchored understanding of the nature of the reality that economics is supposed to illuminate. This column, which introduces a new CEPR Policy Insight, says that instability of leverage, connectivity, and the potential instability of the price level have all been neglected in stable-with-frictions macro theory. Technical innovations will not bring real progress as long as “stability-with-frictions” remains the ruling paradigm. Meanwhile, governments are not prepared to face another crisis.

Prakash Kannan, 19 November 2009

Will the economic recovery be U-, V-, W-, or L-shaped? This column warns that recoveries from recessions caused by financial crises are slower than others, due to stressed credit conditions that persist even after output begins to recover. It thus recommends policies aimed at recapitalising financial institutions, resolving distressed financial assets, ensuring adequate provision of liquidity, and expediting bankruptcy proceedings.

Barry Eichengreen, Kevin O'Rourke, Miguel Almunia, Agustin Bénétrix, Gisela Rua, 18 November 2009

There is one important source of information on the effectiveness of monetary and fiscal stimulus in an environment of near-zero interest rates, dysfunctional banking systems and heightened risk aversion that has not been fully exploited: the 1930s. This column gathers data on growth, budgets and central bank policy rates for 27 countries covering the period 1925-39 and shows that where fiscal policy was tried, it was effective.

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