Financial crisis
Learning errors slow recovery from financial crises – paper
Researchers examine information rigidity in financial markets and incorporate the learning behaviour of investors into a DSGE model
Former Bank of Thailand governor cleared of Asian financial crisis charges
Governor cleared of wrongdoing related to central bank’s defence of baht in 1997, as Supreme Court brings 15-year court case to a close
Paper examines effects of financial crisis on European long-term debt issuance
Bank of Spain paper uses large database on most frequent issuers of long-term debt
‘Moral suasion’ and yield-seeking intensified sovereign debt crisis – ECB paper
Researchers use information on 226 eurozone banks; publicly owned, recently bailed-out and less strongly capitalised banks engaged increased sovereign bond holdings during crisis
Low growth and low rates to hit financial stability, says IMF
Weak outlook is likely to feed into medium-term problems for financial stability, fund warns; Basel Committee may have to delay agreement on final framework
Danish economist updates DSGE model with financial frictions
Jesper Pedersen adds imperfectly competitive banking system and housing market to improve model’s ability to explain crises
Book notes: Connectedness and contagion, by Hal Scott
Scott’s argument on the dangers of contagion has many appealing features, although he may be too eager to hand powers to unelected officials, writes Michael Reddell
BoE’s Forbes studies generation of ‘global tsunamis’
External MPC member asks why some global shocks have major consequences and others do not, seeking answers in countries’ financial linkages, common shocks and contagion
BIS’s Borio: leaning against the wind must be systematic
Claudio Borio says using monetary policy to stabilise the financial cycle is only likely to be effective if done all the time, not just when trouble is brewing
Recessions nearly tripled amount of Italian NPLs, paper argues
Italian bad debt levels would be almost one third of their current levels without the sub-prime and sovereign debt crises, a counterfactual analysis argues
Book notes: And the weak suffer what they must?, by Yanis Varoufakis
A book that is likely to elicit strong opinions – but Varoufakis writes persuasively, and may well win over many of his readers, says David Mayes
Countries’ capital flows differ substantially since financial crisis – ECB paper
Macro-prudential policies could be a long-term impediment to capital flows, according to the authors of an ECB paper
US credit constraints heighten global propagation of financial shocks, researchers argue
Normal credit conditions in domestic US economy greatly lessen the global impact of American financial shocks, a European Central Bank paper argues
King calls for IMF revamp
Former BoE governor suggests replacing IMF’s executive board with International Monetary and Financial Committee; notes fund may have strayed too far into political territory
Economists add to theory and empirics of economy’s non-linear dynamics
Paper by Bank of England economists finds “strong evidence” of non-linearity in UK data, while Markus Brunnermeier and Yuliy Sannikov expand theory of financial amplification mechanisms
Data gaps hamper work on emerging market vulnerabilities – BIS paper
Large debt stocks, particularly in foreign currencies, point to vulnerabilities in some emerging markets, but gaps in the data are hampering analysis, BIS economists say
Long-run financial market volatility has strong effects on real economy, researchers say
A Bank of England working paper presents a method for breaking financial market volatility into long- and short-run components; long-run volatility closely linked to economic fundamentals, authors say
Paper outlines methods for creating country-specific banking crisis prediction models
Working paper tests models with country-specific and state-dependent parameters on a sample of 14 European countries; approach out-performs traditional early-warning models, researchers argue
Icelandic paper finds ‘striking’ ties between financial cycle and real economy
Authors identify strong financial cycle linked to global factors, which impacts macro variables including consumption and government spending; paper suggests range of policy responses
US enforcement actions stopped worse borrowing terms during subprime crisis, paper argues
Researchers compile database matching US enforcement actions to banks and their loans; price, duration and size of loans improved following enforcement actions, they argue
Bank of Mauritius constantly ‘beefing up’ regulatory capacity, says governor
Post-financial crisis ‘awakening’ posed challenges for authorities, says Roi; updating regulatory and supervisory capacity is ‘never-ending’
ECB paper compares ability of indicators to predict bond risk premia
Researchers assemble 132 macroeconomic indicators and compare their performance against financial measures as predictors of eurozone countries’ bond risk premia
ECB paper explores capital-based macroprudential measures
Dampened credit and asset price growth can have a “sizable” impact on predicted crisis probabilities, authors note; they present an early warning global autoregressive model
Orphanides: governments should rein in ‘immense power’ of central banks
Central bank balance sheets give them power to dramatically affect the distribution of wealth, undermining democracy, former Central Bank of Cyprus governor argues