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.

Laurence Ball, 24 August 2016

Much of the damage from the Great Recession is attributed to the Federal Reserve’s failure to rescue Lehman Brothers when it hit troubled waters in September 2008. It has been argued that the Fed’s decision was based on legal constraints. This column questions that view, arguing that the Fed did have the legal authority to save Lehman, but it did not do so due to political considerations.

Thomas Gehrig, 25 May 2016

During normal operations, price discovery is an important feature of decentralised market trading. But the process can be distorted when markets are under great stress, such as during the run up to the collapse of Lehman Brothers in 2008. This column uses trading data from the days leading up to and following the collapse to show that price discovery at US stock exchanges remained remarkably efficient, even at the height of the turmoil.

Alex Cukierman, 30 March 2016

The quantity theory of money implies that sustained inflation requires a sustained increase in the money supply. It does not, however, imply that the reverse is also true. This column explores and illustrates this issue by comparing inflation in the US following the collapse of Lehman Brothers with Germany’s hyperinflation experience after WWI. A key factor explaining the vastly different inflation experiences is how the monetary expansion translated into demand. The Fed’s base expansion did not translate into demand for goods and services, whereas the German monetary expansion was motivated by the government’s hunger for seigniorage revenues.

Puriya Abbassi, Falk Bräuning, Falko Fecht, José-Luis Peydró, 02 April 2015

The Global Crisis and subsequent sovereign debt crisis in the Eurozone severely distressed wholesale funding markets. This column argues that in the Eurozone, interbank funding conditions tightened particularly for cross-border borrowing. Moreover, during the worst moments of the crisis, the same borrower bank could pay different prices (up to 100 basis points) for identical loans during the same day. Non-standard monetary policy measures help mitigate these liquidity disruptions, with stronger effects in countries under distress.

Evangelos Benos, Rod Garratt, Peter Zimmerman, 07 August 2012

How does a major credit event such as the failure of Lehman Brothers on 15 September 2008 influence the way banks send and receive payments to and from one another? And what are the associated risks and costs?

Paolo Manasse, Giulio Trigilia, 06 July 2011

Most analysts agree that Greece is insolvent. This column argues that the issue is whether Greece’s troubles are contagious.

Cédric Tille, Philippe Bacchetta, Eric van Wincoop, 19 July 2010

Why did the world economy plunge into the worst recession since the Great Depression? This column argues that economic fundamentals do not explain the global crisis. But they did play a role. Events such as the fall of Lehman Brothers can become focal points for investors’ risk perceptions, changing the way the fundamentals are interpreted. This can lead to “risk panics” – self-fulfilling spikes in risk and a collapse in asset prices.

Gara Afonso, Anna Kovner, Antoinette Schoar, 26 April 2010

Many commentators have argued that interbank lending froze following the collapse of Lehman Brothers. This column presents evidence from the fed funds market that, while rates spiked and loan terms became more sensitive to borrower risk, mean borrowing amounts remained stable on aggregate. It seems likely that the market did not expand to meet additional demand for funds.

Events

CEPR Policy Research