Kamil Yilmaz, 28 March 2009

This column introduces an index identifying how much shocks to industrial production in one country spill over to other countries. Since September 2008, the index has jumped higher than ever – countries are pulling each other down. It argues that this reinforces the case for global action and calls for coordinated policy actions by the G20.

Fred Bergsten, 28 March 2009

The financial crisis is a global phenomenon. The downturn continues to be rapidly transmitted across borders through trade and financial channels. A global policy response to provide fiscal stimulus, avoid protectionism and help developing countries is imperative. The G20 summit in London provides a unique opportunity to mobilise the needed cooperation.

Philip Lane, 26 March 2009

This column provides a tour of the main ideas discussed in the Macroeconomic theme of the Global Crisis Debate on VoxEU.org. Bottom line: fighting the current crisis and preventing future crises requires a holistic approach that tackles both short-term macroeconomic policy imperatives and longer-term institutional reforms. It is a false choice to argue that the upcoming summit should focus on one or the other. Fixing this crisis without redressing global imbalances may be setting the stage for the next crisis – a dollar collapse.

Ricardo Caballero, 26 March 2009

After unloading toxic assets, many banks will need new capital. This column proposes raising private capital to invest in distressed banks’ new equity using a mechanism similar to the Legacy Assets Program recently announced by Geithner. Since equity markets are more liquid, the leverage ratio and the public-equity participation in this new plan would be much smaller, e.g. the leverage ratio capped at two and the public-capital participation at 30%.

Jon Danielsson, 25 March 2009

Many are calling for significant new financial regulations. This column says that if the “regulate everything that moves” crowd has its way, we will repeat past mistakes and impose significant costs on the economy, to little or no benefit. The next crisis is years away – we have time to do bank regulation right.

Jeffrey Sachs, 25 March 2009

This column explains how the Geithner public-private scheme to buy toxic assets at inflated prices is – in expected value terms – a hidden subsidy to bank shareholders paid for by US taxpayers. If the toxic assets turn out to be good investments, there is no transfer, but if they turn out to be bad loans, the taxpayer is left holding the damage while the private investors walk away.

Andreas Freytag, Sebastian Voll, 25 March 2009

The crisis offers an opportunity for emerging countries to use their increased economic weight and take the lead in international trade policy, putting the industrialised countries’ own reforms and global initiatives under pressure. This column argues that emerging markets should take this opportunity to liberalise their external policies.

Guillermo Calvo, 23 March 2009

Fiscal stimulus and financial regulation cannot restore credit availability. This column argues that we need a global lender of last resort to restore liquidity. In the short run, it presses for large liquidity facilities to protect emerging market economies from the risk of damaging sudden stops of capital inflows.

Jeremy Bulow, Paul Klemperer, 21 March 2009

Fixing the banks is an absolute priority in G7 nations. Doing this by buying toxic assets is costly, inefficient, and risky. Governments should focus on which liabilities, rather than which assets, they need to support. This column proposes creating “bridge” banks as a way of re-establishing a healthy banking system.

Michael Dooley, Peter Garber, 21 March 2009

This column argues that current account imbalances, easy US monetary policy, and financial innovation are not the causes to blame for the global crisis. It says that attacking Bretton Woods II as a major cause of the crisis is an attack on the world trading system and a sure way to metastasise the crisis in the global financial system into a crisis of the global economic system.

Rajiv Kumar, 21 March 2009

In the long run, a number of analysts believe that the G20 should replace the G8. This column argues that the G20 summit should focus on producing tangible outcomes that will clean up the financial sector and prevent a protectionist outbreak. Despite their obvious importance, other issues, including grand reforms, can wait.

Kemal Derviş, 19 March 2009

What policy measures might reduce the economic damage developing countries suffer from the global crisis? This column says that developing economies should seek emergency liquidity, IMF reforms, greater fiscal support, and more humanitarian development assistance at the London summit next month.

Emre Ergungor, Kent Cherny, 19 March 2009

The way Sweden handled its 1990s banking crisis has been offered as a useful case study in resolving systemic banking crises. This column discusses the merits of the Swedish experience relative to ideal resolution strategies.

Hyun Song Shin, 18 March 2009

Did securitisation disperse risks? This column argues that it undermined financial stability by concentrating risk. Securitisation allowed banks to leverage up in tranquil times while concentrating risks in the banking system by inducing banks and other financial intermediaries to buy each other’s securities with borrowed money.

Xavier Freixas, Joel Shapiro, 18 March 2009

Credit rating agencies played a significant part in the financial meltdown, failing (sometimes intentionally) to properly estimate complicated products’ risk. This column summarises the problems plaguing the industry – conflicts of interest, “shopping” for ratings, and informational issues. It concludes that regulators must reshape the agencies and their role.

Daniel Bradlow, 18 March 2009

Will the G20 agree to the reforms needed to make the IMF an effective part of international financial governance? The prospects are grim because it would require difficult political compromises or amendments to the IMF’s Articles of Agreement. Yet reforms are needed to address the IMF’s coordination with other international institutions, the scope of the financial regulatory regime, and its representative legitimacy. This column some initial steps the G20 might take.

Ricardo Caballero, 18 March 2009

Financial markets are not reacting well to the US Treasury’s Capital Assistance Programme. This column fleshes out Ricardo Caballero's plan for raising private capital by leveraging a government-guaranteed price five years from today. This implicit put option should cut out Knightian uncertainty about banks’ health, draw in capital, and avoid excessive government control. If it works, the cost to taxpayers would be minimal.

Barry Eichengreen, Douglas Irwin, 17 March 2009

What do we know about the spread of protectionism during the Great Depression and what are the implications for today’s crisis? This column says the lesson is that countries should coordinate their fiscal and monetary measures. If some do and some don’t, the trade policy consequences could once again be most unfortunate.

Charles Wyplosz, 17 March 2009

We should not expect much global fiscal policy coordination, this column warns. The G20 will not be able to paper over the deep transatlantic divergences in the way economic policies are prepared and understood. While the US, UK, Japan, and China want a significant fiscal response, European nations are fixated on overhauling financial regulation.

Bradford DeLong, 16 March 2009

There are legitimate reasons to fear that deficit-spending fiscal boost programs will not work well enough and have high enough longer-term costs to be not worth doing. This column says we do not need to fear bottleneck-driven inflation, capital flight-driven inflation, crowding-out of investment spending, nor reaching the limits of debt capacity because we will see them coming in time.



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