Claudio Raddatz, Sergio Schmukler, 22 September 2011

As the financial crisis spread throughout the world, attention fixed on those working in the stock and bond markets, with many accusing them of making the crisis worse. This column looks at data on international mutual funds since 1996 and finds that when there is a crisis, equity funds tend to amplify the shock by acting procyclically, while bond funds transmit the crisis across countries by acting countercyclically.

Geert Bekaert, Michael Ehrmann, Marcel Fratzscher, Arnaud Mehl, 12 August 2011

As financial markets take another turn, this column explores lessons from the global crisis of 2007-2009 and discusses the source and determinants of contagion. It argues that real and financial linkages to the US or the global economy played a relatively minor role. Instead the crisis was a “wake-up call” to investors to pay more attention to countries’ policies and fundamentals.

Marco Terrones, Stijn Claessens, M. Ayhan Kose, 17 July 2011

The recent crisis has not only been a painful reminder of the importance of financial cycles, but it has also exposed our limited knowledge of them. This column explores two key questions on financial cycles: What are their main features and what happens when cycles in different financial markets coincide?

Nauro Campos, Jeffrey Nugent, 10 July 2011

If economic crises make the short-run pains of reforms easier to bear, then crises could yield considerable long-run benefits. But this column argues that the recent global financial crisis has been wasted thus far. It suggests that it is political crises – and not economic turmoil – that actually bring about reforms.

Ruediger Fahlenbrach, Robert Prilmeier, René Stulz, 27 May 2011

Crises are a regular event in financial markets. But do banks that have been hit particularly hard in one crisis learn from the experience and suffer less in future crises? This column suggests not. It shows that banks particularly hard hit by the 1998 financial crisis were also badly affected by the recent financial crisis. It blames the high-risk business models on which these banks rely.

Pierella Paci, Ana Revenga, Bob Rijkers, 19 April 2011

When a crisis hits, how should policymakers move to save jobs? This column reviews the evidence from policy responses to recent crises, highlighting the importance of being prepared. It finds that countries with prudent fiscal management and sound policy infrastructure tend to suffer relatively smaller and shorter negative shocks than others.

Enrico Perotti, Mark Flannery, 09 February 2011

Contingent Convertible (CoCo) bonds have been suggested as a way to ensure that banks keep aside enough capital to help them through financial crises. This column proposes a market-triggered CoCo buffer to maintain risk incentives during periods of high leverage. It argues that this will also activate risk information discovery through the market prices of bank securities and increase activism by outside shareholders.

Javier Santiso, Emmanuel Frot, 27 November 2010

Do emerging-market democracies risk destabilising financial markets every time their voters go to the polls? This column presents new evidence on the effects of elections on portfolio flows. It finds that elections diminish equity flows when they bring political uncertainty.

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.

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.

Venkatachalam Shunmugam, 08 August 2010

If the base rate rises, all things being equal, the exchange rate is expected to rise and bond prices to fall. This column argues that, during a financial crisis, such relationships between asset classes go haywire. When this happens, it says governments (including central banks) must provide strong signals to the market and make sure that they pick up the right signals from the market themselves.

Raghuram Rajan, 06 August 2010

Raghuram Rajan of the University of Chicago talks to Romesh Vaitilingam about his book 'Fault Lines', in which he outlines the deep systemic problems in the world economy that threaten further financial crises – high US inequality, patched over by easy credit; excessive stimulus to sustain job creation in times of downturn; and the choices of Germany, Japan and China to focus on export-led growth rather than domestic consumption. The interview was recorded in London in July 2010.

Joseph Gyourko, Yongheng Deng, Jing Wu, 28 July 2010

Reinhart and Rogoff’s recent influential study of financial crises finds a recurring root – the country’s property markets. This column argues that a similar housing bubble may be developing in China. Urgent research is needed to determine the risk of a full blown crisis.

Thomas Mayer, Michael Biggs, Andreas Pick, 14 May 2010

The observation that economies can recover from a crisis without the need for credit growth is known as a “Phoenix Miracle”. This column argues that this theory is based on an inappropriate comparison between GDP – a flow variable – and the stock of credit. If GDP is instead compared with the flow of credit, it is evident that GDP and credit recover simultaneously.

Marc Flandreau, Norbert Gaillard, Ugo Panizza, 18 April 2010

The global crisis is frequently compared to the Great Depression and the interwar debt crises. This column argues that, contrary to prevailing opinion, the interwar debt crisis had little to do with bankers’ conflicts of interest – intermediaries were in fact careful in selecting and placing sovereign bonds. Then, as now, public opinion may not be the best guide to policy.

Bruno Biais, Jean-Charles Rochet, Paul Woolley, 25 March 2010

How does economic theory need to adjust in light of the global financial crisis? This column presents a new insight on how innovation leads to rent capture, which in turn is a sign of a potential crisis. This stems from asymmetric information in the financial sector. To avoid a repeat of the crisis, policymakers need to increase transparency.

Richard Levich, Momtchil Pojarliev, 29 January 2010

Regulators understand the potential threat of crowded trades, but they also recognise the difficulty of tracking them. This column suggests a new approach for regulators to monitor crowdedness of selected trades. Fund managers and financial regulators could use data on crowdedness to assess the risk that a financial market may enter an asset bubble.

Mary Amiti, David Weinstein, 23 December 2009

Can the drying up of trade finance help explain the recent collapse in exports relative to output? This column looks at the effect that trade finance had on exports during the 1990s Japanese financial crisis using firm-level data. It suggests that the direct effect of declining bank health on exports caused at least a third of the decline in Japan’s exports at the time.

Stephen Cecchetti, Marion Kohler, Christian Upper, 28 October 2009

Is the current turmoil unique? This column examines three decades of financial crises and says that it stands out. But the variation in past experiences suggests that the major economies may regain their pre-crisis levels of output by the second half of 2010.

Marcus Miller, 03 October 2009

A bursting economy-wide asset bubble could be the economic equivalent of a collapsing supernova – the “black hole” of mass insolvency threatening to swallow whole sectors of an over-leveraged economy. This column outlines the role for government rescues in response to a vicious deleveraging spiral, though they raise moral hazard concerns.


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