Laurence Kotlikoff, 28 November 2018

The general consensus on what caused the Great Recession can be summed up as “bad banks full of bad bankers did bad things”. This column argues, however, that this narrative doesn’t fit the facts. And worse, it diverts attention from the real problem, which was regular use of a bad banking system – a banking system built to fail.

Guillermo Ordoñez, Facundo Piguillem, 19 October 2018

As life expectancy has increased, so has the need for retirement savings. New financial instruments have been important in meeting the increasing demand for safe assets. This column shows that shadow banking has played a crucial role in meeting the higher demand for insurance by lowering the financial sector’s liquidity costs. Despite its role in the Great Recession, shadow banking has done more good than harm.

Coen Teulings, 13 September 2018

The decade following the Lehman Brothers bankruptcy was a traumatic period for the euro area. Though the financial crisis originated in the US, the recovery there was quicker than in the euro area, and the output loss in the euro area appears to be about 15% compared to ‘only’ 10% for the US. This column argues that the imbalance between monetary and fiscal integration seems to have been an important factor behind the euro area being hit more severely than the US. A revision of the fiscal rules is needed.

James Cloyne, Kilian Huber, Ethan Ilzetzki, Henrik Kleven, 31 August 2018

House prices are strongly correlated with borrowing, but little is known about which one is causing the other. The column uses UK house price data between 2005 and 2015, and also exploits unusual features of the UK mortgage market, to show that a 10% rise in house prices led to a 2% rise in the amount of equity extracted. This is mostly because higher house prices could be used as collateral.

Tim Jackson, Laurence Kotlikoff, 30 August 2018

Financial crises have historically been triggered by news of financial malfeasance. Some economists advocate greater opacity for bankers to ensure investors keep the faith. This column models bankers as including a share of malfeasants who steal or lose investors’ money. Within this framework, deposit insurance makes matters worse and private monitoring fails due to free riding. The optimal policy is identified as full financial disclosure, which weeds out crooked bankers. 

Pierre Cahuc, Francis Kramarz, Sandra Nevoux, 16 July 2018

Short-time work programmes aim to preserve jobs at firms that are experiencing temporarily low revenues, for example during a recession. This column assesses how the short-time work programme implemented in France during the Great Recession affected employment. Results confirm that the programme saved jobs and increased hours worked, and that participating firms recovered faster than non-participating firms. 

Gene Amromin, Mariacristina De Nardi, Karl Schulze, 04 January 2018

A widening gap between rich and poor has been extensively documented for many countries and economies. This column explores how the wealth gap affects output and consumption changes in response to aggregate shocks. Lower- and higher-wealth households face different borrowing constraints, and have different marginal propensities to consume. Different levels of access to financial liquidity thus play a major role in the overall consumption dynamics during an economic downturn.

Yann Algan, Sergei Guriev, Elias Papaioannou, Evgenia Passari, 12 December 2017

A wave of populism has been gaining ground in the West since 2012. This column uses regional data for 26 European countries to explore how the impact of the Great Recession on labour markets has affected populist voting, political attitudes, and trust. The results indicate a strong link between unemployment and voting for non-mainstream (especially populist) parties. Unemployment is also correlated with increasing distrust of national and European parliaments.

David Miles, Ugo Panizza, Ricardo Reis, Ángel Ubide, 25 October 2017

Occasionally, inflation is stubborn. For many years it was hard to bring under control, but in the last decade has been low and stable. The latest Geneva Report on the World Economy studies the latest bout of stubbornness, asking why inflation has remained in such a narrow range. It shows that a large number of diverse shocks have hit developed economies during the last decade, which have more or less cancelled each other out. One of these 'shocks' has been monetary policy, which was skilfully used in response to wider macroeconomic events. Central banks, in other words, combined good policies and good luck. Next time, however, we may not be so lucky.

Paul Krugman, 04 October 2017

Where did policymakers got it right? In this video, Paul Krugman explains how central banks did the right thing, whereas austerity was imposed at the wrong time. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Giancarlo Corsetti, Gernot Müller, Keith Kuester, 16 September 2017

The classic rationale for flexible exchange rates was that policymakers would be unconstrained by currency targets. The Great Recession, however, saw numerous central banks constrained instead by the zero lower bound. This column considers which exchange rate regime is best for small open economies in a global recession. The model suggests that if the source of the shock is abroad and foreign interest rates become constrained at their zero lower bound, then flexible exchange rates do provide a great deal of insulation to the domestic economy.

Stéphane Bonhomme, Laura Hospido, 04 September 2017

The link between the rise in unemployment and the housing market in the US during the Great Recession is well documented. This column shows that in the case of Spain, the rise and fall in demand for construction workers following developments within the housing market had a big impact earnings inequality as well as employment. While there has been no apparent trend in the recent evolution of earnings inequality in Spain, countercyclical fluctuations have been substantial, with the construction sector playing a key role in this.

Ricardo Caballero, Alp Simsek, 30 August 2017

Interest rates continue to decline across the globe, while returns to capital remain constant or increasing. The reasons for this widening risky-safe gap are wide-ranging. This column illustrates the secular rise of risk intolerance in the global economy, and summarises a new macroeconomic framework suitable for this environment. It uses this framework to discuss the current global macroeconomic context, its underlying fragility, and the coexistence of low equilibrium interest rates and high speculation.

Olivier Coibion, Yuriy Gorodnichenko, Mauricio Ulate, 24 August 2017

Estimates of potential output around the world have been systematically revised downward since the Great Recession. This column argues that the methods used to create these estimates do not distinguish between transitory and permanent shocks, or demand and supply shocks. Taking these differences into account suggests US output is almost 10 percentage points below potential output. This has important immediate implications for policymakers, and raises questions for those who estimate potential output.

Neil Ericsson, 08 June 2017

Decisions by the Fed's Federal Open Market Committee are based in part on the Greenbook forecasts. These forecasts are produced by the Federal Reserve Board’s staff and are presented to the FOMC prior to their policy meetings, but are not made public for another five years. This column shows that the minutes of those FOMC meetings can help infer the Fed staff's Greenbook forecasts of the US real GDP growth rate, years before the Greenbook's public release. The FOMC minutes are thus highly informative about a key input to monetary policymaking.

Robert Kollmann, Beatrice Pataracchia, Rafal Raciborski, Marco Ratto, Werner Roeger, Lukas Vogel, 27 April 2017

The Global Crisis led to a sharp contraction and long-lasting slump in both Eurozone and US real activity, but the post-crisis adjustment in the Eurozone and the US shows striking differences. This column argues that financial shocks were key determinants of the 2008-09 Great Recession, for both the Eurozone and the US. The post-2009 slump in the Eurozone mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment linked to the poor health of the Eurozone financial system. Mono-causal explanations of the persistent slump are thus insufficient. Adverse financial shocks were less persistent for the US.

Christopher House, Christian Proebsting, Linda Tesar, 11 April 2017

Austerity policies implemented during the Great Recession have been blamed for the slow recovery in several European countries. Using data from 29 advanced economies, this column shows that austerity policies negatively affect economic performance by reducing GDP, inflation, consumption, and investment. It also warns that efforts to reduce debt through austerity in the depths of the economic recession were counterproductive.

Samuel Bentolila, Jose Ignacio García Pérez, Marcel Jansen, 09 March 2017

Long-term unemployment is one of the most persistent consequences of the Great Recession, particularly in Spain, where external factors were compounded by domestic problems. This column analyses the mechanisms that worked to create such widespread and persistent long-term unemployment. To improve the prospects of the long-term unemployed, Spain should step up its efforts to implement effective active labour market policies.

Fabrizio Coricelli, Marco Frigerio, 23 February 2017

A main source of alternative financing during credit crunches is trade credit. This column argues that small and medium-sized enterprises in Europe suffered a liquidity squeeze during the Great Recession due to the increase of their net lending to large firms. This squeeze was induced by their weak bargaining power in trade credit relationships, and had significant adverse effects on their levels of investment and employment.

Christopher Boone, Arindrajit Dube, Lucas Goodman, Ethan Kaplan, 08 January 2017

The Unemployment Insurance programme in the US was significantly expanded during between 2008 and 2014. This column examines the effect of unemployment insurance duration on aggregate employment during the Great Recession using state-level expansions and contractions in insurance generosity. It finds a positive but not statistically significant employment impact of expanding the insurance. This suggests that the substantial insurance value of the extensions during the Great Recession was not offset in any meaningful way by any costs from weaker job growth.  

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