Financial cycle
BoE paper outlines DSGE model of financial and real frictions
“Channels of effect” run between financial markets and labour markets, authors find
Brainard reboots calls for countercyclical buffers
“Countercyclical capital requirements build resilience, unlike monetary policy,” Brainard says
Falling offshore borrowing has helped shield Australia – RBA official
RBA’s monetary policy has not followed Fed’s normalisation
Italian crisis and trade tensions are raising eurozone risk – ECB
Emerging market stress and fears of protectionism may drag down global growth, ECB says
Standard notions of time fail to fully explain financial cycles – BIS paper
Distinguishing “calendar time” and “financial cycle time” could help explain booms and busts
Information can substitute for collateral, BoE paper finds
Strong lending relationships can insulate a firm during booms and busts
IMF’s Adrian calls for forecasting upgrade
Policy forecasts should do a better job of capturing endogenous risk, economist says
‘Hyman Minsky was right’ – Don Kohn
Macro-prudential policy should mitigate crisis risks, but needs to be well communicated, says Bank of England policy-maker
Flatter US yield curve may not herald a new crisis – San Francisco Fed
The curve inversion has not materialised, while low long-term yields may be related to quantitative easing
Financial stability mandate could ‘undermine’ monetary policy – Weidmann
Bundesbank governor says putting financial stability on par with price stability would be a mistake
James Bullard on 2% rates, tariffs and Fed leadership
The president of the Federal Reserve Bank of St Louis speaks about the impact of US trade policies, the disruption to the banking industry from Silicon Valley, shrinking the Fed balance sheet and the potential for agent-based modelling
The perilous road to normality
Many central banks are starting to tighten policy, but their room for error is limited and their final destination unclear. What more can they do?
Fed paper questions value of debt as crisis indicator
Asset prices and current account balance more important, author finds
Adrian and Rey: macro-prudential tools needed to resist ‘bad booms’
Economists say monetary policy cannot fully control local conditions; Hélène Rey calls for improved early warning models
Fed’s Brainard notes pro-cyclical challenges to supervision
Fiscal stimulus at a time when the economy is running hot requires vigilance, governor says; stress tests cannot counter all pro-cyclicality in credit
Risky firms can transmit financial cycle – BIS paper
Authors find smaller, younger firms are more likely to tap into global markets during risk-on phases, creating vulnerabilities
Global leverage may be higher than supervisors realise – IMF paper
Standard measures of leverage are too focused on balance sheets, researchers say
Norway maintains countercyclical capital buffer at 2%
Norges Bank advises the government not to reduce the buffer because of high household debt
Interest rate risk could be seed of next crisis – economists
Financial markets may have underestimated the persistence of low rates, and regulations have amplified the threat, say Srichander Ramaswamy and Philip Turner
Global influence on local financial conditions is stable, research finds
Share of financial fluctuations caused by global factors has not markedly risen in last two decades
Davos experts weigh risks of future crisis
High debt levels, a rise in real interest rates and China are on the agenda for the panellists, who believe another financial crisis is inevitable
‘Goldilocks economy’ implies bears may not be far away – Menon
Despite reasons for optimism, “three grumpy bears” may soon return, says MAS chief
Cyclical price analysis needs major improvements – ECB paper
Researchers say DSGE models’ handling of housing prices is subject to errors
Fed paper sets out model of financial panics
Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino examine banking panics in a DSGE model