Jon Danielsson, Hyun Song Shin, Jean-Pierre Zigrand, 11 March 2009

By incorporating endogenous risk into a standard asset-pricing model, this column shows how banks’ capacity to bear risk seemingly evaporates in the face of market turmoil, pushing the financial system further into a tailspin. It suggests that risk-sensitive prudential regulation, in the spirit of Basel II, makes systemic financial crises sharper, larger, and more costly.

Enrico Perotti, Javier Suarez, 27 February 2009

In this new Policy Insight Enrico Perotti and Javier Suarez explain how a liquidity and capital insurance arrangement could provide emergency liquidity (and perhaps capital) and protect the economy against systemic crisis.

Enrico Perotti, Javier Suarez, 27 February 2009

Correlated liquidity risks caused subprime mortgage problems to spread widely and sow panic that led to the credit crisis. This column proposes a mandatory liquidity charge to insure against collective bank runs in the future. It argues for charges proportional to securities’ maturity mismatches so as to discourage practices that create systemic risk.

Salvatore Rossi, 25 February 2009

There are two schools of thought on how to get credit flowing again. One suggests buying the toxic assets, the other says to recapitalise banks. This column says that both approaches are necessary, though the right balance will vary across nations. The real difficulty is aligning incentives – in both pricing assets and recapitalising banks, bank managers’ interests may thwart governments’ objectives.

Enrique Mendoza, 12 February 2009

This column rehabilitates Irving Fisher’s debt-deflation theory to explain the current crisis. It suggests that fiscal stimulus will do little to prevent the crisis from becoming a protracted slump because the problem lies in finance. A cure will require reversing deflation and restarting the credit system.

Viral Acharya, Matthew Richardson, 07 February 2009

How did global finance become so fragile that a collection of bad mortgages in the US could bring the entire system to its knees and the global economy along with it? How can this fragility be eliminated? This column describes the answers provided in an important new book which has been written by a team of world-class scholars from NYU’s business school.

Sylvester Eijffinger, 05 February 2009

This column outlines the Netherlands’ economic recovery plans and compares them to those of other EU members. The Dutch and German plans are sound, as they focus on inducing investment rather than assisting consumers and avoid picking winners amongst industries. But their efforts may not be enough, given recession forecasts.

Hyun Song Shin, 31 January 2009

Today’s financial regulation is founded on the assumption that making each bank safe makes the system safe. This fallacy of composition goes a long way towards explaining how global finance became so fragile without sounding regulatory alarm bells. This column argues that mitigating the costs of financial crises necessitates taking a macroprudential perspective to complement the existing microprudential rules.

Robert J. Gordon, 30 January 2009

Robert Gordon of Northwestern University talks to Romesh Vaitilingam about the causes and consequences of the economic crisis, the emerging consensus on the need for fiscal stimulus, and the challenge to the schools of thought that have dominated macroeconomics in recent decades. He argues that we will see a return to old-fashioned Keynesian (non-market clearing) analysis in macroeconomic teaching and research. The interview was recorded at the American Economic Association meetings in San Francisco in January 2009.

Zsolt Darvas, Jean Pisani-Ferry, 23 January 2009

The financial crisis is now hitting several of the non-euro-area new member states hard, highlighting the shortcomings of Europe’s monetary architecture. Crisis management in the euro area has had the unintended consequence of putting non euro-area new member states at disadvantage. Without decisive action, a new political and economic divide within Europe may emerge.

Leigh Caldwell, 21 January 2009

This column argues responses to the recession should not be based on unrealistic expectations of rational behaviour. It argues that models of bounded rationality provide reasons that traditional macroeconomic policy responses may fall short and suggests more sophisticated solutions that could break the crisis’s psychological hold on markets.

Axel Leijonhufvud, 13 January 2009

Following the analysis of the crisis’s causes in the yesterday’s column, this column suggests that the new financial regulatory system should impose effective reserve requirements on deposit-taking banks, and impose capital requirements for virtually all financial institutions with these requirements being counter-cyclical to dampen the boom-bust cycle.

Axel Leijonhufvud, 12 January 2009

This column explains how lack of regulation and failed monetary policy caused the failure of financial markets and then illustrates the banking crisis with simple arithmetic. It concludes that the automatic adjustment of free markets is ineffective in producing a recovery from this recession.

Luis Jácome HG., 03 January 2009

As the global economic crisis goes south, developing countries' central banks must cope with financial turmoil. Recent experience in Latin America, this column argues, cautions against pouring money into the financial system. Countries that relied on prompt corrective actions managed crises well, while those relying on central bank money suffered greater instability.

Andreas Freytag, Gernot Pehnelt, 11 December 2008

In a future phase of the crisis, the issue of sovereign debt relief is likely to arise. Such debt relief has historically been marked by political failure and short-term thinking, and not delivered promising results. Drawing on recent research, this column argues for tying debt relief to good governance goals is one way to improve the outcome.

Guillermo Calvo, Rudy Loo-Kung, 10 December 2008

Emerging markets are weaker than the G7, and if they undertake expansionary monetary and fiscal policies like the G7, inflation and capital flight are likely surge. This column argues international financial institutions must take an unprecedented role in bailing out emerging markets as there is the serious risk that they resort to protectionism and nationalisation.

Helmut Reisen, 06 December 2008

The global credit crisis is testing the resilience and sustainability of emerging markets’ policies, this column warns. Even strong performers are not shielded against pure financial contagion, although they may well recover quickly once confidence is restored. In the future, development finance is likely to rely less on private debt.

Sylvester Eijffinger, 03 December 2008

In CEPR Policy Insight No 27, Sylvester Eijffinger discusses the crisis management in the EU. The paper describes the development of the crisis with the denial phase, the discovery phase and the disposal phase of the crisis. It also analyzes the nationalization of banks and the three conditions that need to be fulfilled to make a bailout as unattractive as possible.

Barry Eichengreen, Richard Baldwin, 10 November 2008

Leaders of the G20 nations are meeting this weekend to discuss financial markets and the world economy. Announced just a few weeks ago, this summit is both very unprepared and very important. The world economy and world financial markets are in a delicate state. This eBook from VoxEU.org collects essays from some of the world's leading economists on what the G20 should do.

Sylvester Eijffinger, 04 December 2008

This column introduces the newest Policy Insight on what the EU has been doing and should be doing in terms of managing the global crisis.

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