The Storm Before the Calm
Janine Aron and John Muellbauer (Project Syndicate) Jan 2009
Central banks can stop worrying about inflation. Price deflation is far more likely in the near term. But temporary deflation need not be the terror that central bankers fear, at least if the banking system is recapitalized and if interest rates in the industrial countries fall sharply.
Cash Aid for Africa
Göran Holmqvist (Project Syndicate) Jan 2009
Europe has made an ambitious commitment to scale up its aid to Africa, and Africa’s challenges call for that greater engagement. But boosting aid to countries that are already aid-dependent requires clearer delivery mechanisms and a degree of budgetary predictability. Something new is called for, and cash transfers directly to poor people could be an alternative - but only as a part of a longer-term vision of partner countries’ welfare systems.
Depression Economics
J. Bradford DeLong (Project Syndicate) Jan 2009
A decade ago, the 2008 Nobel laureate in economics, Paul Krugman, wrote a little book entitled The Return of Depression Economics. It sank like a stone.
The Euro Ark
Joaquin Almunia (Project Syndicate) Jan 2009
The euro is celebrating its tenth anniversary against the background of the most difficult economic climate since its birth. The financial storm that swept in from the United States, and the onset of a severe economic downturn, confronts Europe with unprecedented challenges.
Fads, Frenzies, and Finance
Xavier Vives (Project Syndicate) Jan 2009
The financial crisis, credit crunch, and ensuing economic downturn have severely damaged the credibility of financial markets, institutions, and traders. More and more people are claiming that markets are characterized by irrationality, bubbles, fads, and frenzies, and that economic actors are driven by behavioral biases.
One Crisis, One World
Kemal Dervis and Juan Somavia (Project Syndicate) Jan 2009
As recession spreads around the world, the global production networks that arose with the globalization of the world economy have become sources of cutbacks and job losses. Postponing purchases of new winter coats in the United States means job losses in Poland or China. These losses then translate into reduced demand for American or German machine tools.
A Time to Experiment
Dani Rodrik (Project Syndicate) Jan 2009
The world economy enters 2009 with more uncertainty (and anxiety) than at any time in recent memory. Although the financial crisis appears to be contained in the United States and Europe, its full repercussions will not be clear for some time. The advanced countries are in for the worst economic downturn since the Great Depression. But how long and deep will this recession be, and how badly will it affect emerging and developing nations?
Recession Insurance
Robert J. Shiller (Project Syndicate) Jan 2009
The Chief Economist of the International Monetary Fund, Olivier Blanchard, and several IMF economists have proposed in a recent paper that governments should offer what they call “recession insurance.” Companies and/or individuals would buy insurance policies, pay a regular premium for them, and receive a benefit if some measure of the economy, such as GDP growth, dropped below a specified level. Such insurance, they argue, would help firms and people deal with the “extreme uncertainty” of the current economic environment.
A Relationship Strengthened by Crisis
David H. McCormick (Project Syndicate) Jan 2009
In recent years, emerging-market countries, including those in Asia, have made impressive strides in strengthening their fundamentals, accelerating their economic growth and cushioning themselves against external shocks. Nevertheless, as the events of recent months have shown, emerging markets are not immune from the current bout of global financial turmoil.
Calling China's Bluff
Gregory Chin & Eric Helleiner (FP) Jan 2009
Why it's far too early to fear China's burgeoning financial clout.
A Breakthrough Against Hunger
Jeffrey D. Sachs (Project Syndicate) Jan 2009
Today’s world hunger crisis is unprecedentedly severe and requires urgent measures. Nearly one billion people are trapped in chronic hunger – perhaps 100 million more than two years ago. Spain is taking global leadership in combating hunger by inviting world leaders to Madrid in late January to move beyond words to action. With Spain’s leadership and United Nations Secretary General Ban Ki-moon’s partnership, several donor governments are proposing to pool their financial resources so that the world’s poorest farmers can grow more food and escape the poverty trap.
Asia in 2009: A rough ox ride to power
David Pilling (FT) Jan 1, 2009
The sorry truth is that, if westerners are not spending, Asians have little cause to make things for them to buy.
The IMF on fiscal policy in the crisis
Richard Baldwin (VoxEU) Jan 1, 2009
No one knows exactly how to stop the global economic crisis, but all agree that fiscal stimulus has a key role to play. By reducing the length and depth of the recession, it should reduce bankruptcies, foreclosures, and further asset-price drops. This column presents the main logic in a recent IMF paper authored by one of the world’s leading macroeconomists, Oliver Blanchard, and others.
The Euro Decade and Its Lessons
WSJ Jan 2, 2009
How to rebuild the global financial system.
Sudden impoverishment as a trigger of civil conflict
Antonio Ciccone (VoxEU) Jan 2, 2009
Does poverty cause civil conflict? This column presents the latest evidence, which shows that droughts in Sub-Saharan Africa that reduce income raise the likelihood of violence.
Risk Mismanagement
Joe Nocera (NYT Magazine) Jan 2, 2009
The great housing-fueled market bubble couldn’t burst, could it? The best Wall Street minds and their best risk-management tools failed to see the crash coming.
Rethinking urbanisation
Guy Michaels, Ferdinand Rauch & Stephen Redding (VoxEU) Jan 3, 2009
This column says that the two central stylised facts of population growth – Gibrat's Law and Zipf’s Law – are wrong. Analysis using new data that describe population patterns in both urban and rural areas suggests that populations experience a divide, as the dense grow and the sparse depopulate.
Central banks and financial crises: Lessons from recent Latin American history
Luis I. Jácome H. (VoxEU) Jan 3, 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.
Credit Default Swamp
WSJ Jan 3, 2009
The Fed wants to give the blundering rating agencies even more power -- this time over derivatives.
The End of the Financial World as We Know It
Michael Lewis & David Einhorn (NYT) Jan 3, 2009
We have a brief chance to cure ourselves. But first we need to ask: of what?
How to Repair a Broken Financial World
Michael Lewis & David Einhorn (NYT) Jan 3, 2009
There are obvious changes in the financial system to be made, to prevent some version of what has happened from happening all over again.
Sovereign disaster
David Goldman Jan 4, 2009
Emerging market sovereign debt remains vulnerable to the effect of the US Treasury's enormous funding requirements. The Treasury's coat-tails look a better ride.
Financial globalisation and productivity growth
M. Ayhan Kose, Eswar Prasad & Marco E. Terrones (VoxEU) Jan 5, 2009
There is a vast empirical literature analysing the impact of financial openness on economic growth but far less attention has been paid to its effects on productivity growth. This is surprising given the strong evidence that productivity growth is the main driver of long-term economic growth. This column argues that financial openness in fact has a positive impact on productivity growth, although the effects are subtle.
Financial regulation built on sand: The myth of the riskometer
Jon Danielsson (VoxEU) Jan 5, 2009
Much of today’s financial regulation assumes that risk can be accurately measured – that financial engineers, like civil engineers, can design safe products with sophisticated maths informed by historical estimates. But, as the crisis has shown, the laws of finance react to financial engineers’ creations, rendering risk calculations invalid. Regulators should rely on simpler methods.
Why it would be wrong to write off the Brics
Jim O'Neill (FT) Jan 5, 2009
For three consecutive years we will see expansion in global demand being led by these four economies.
Central banks must be the debt watchdogs
Andrew Large (FT) Jan 5, 2009
Only the central bank has the necessary closeness to the financial nervous system to oversee the build-up of leverage.
There is only one alternative to the dollar
David Hale (FT) Jan 5, 2009
The clear replacement for the US currency in 2009 is not that of another country but that ancient form of money.
Study Finds IMF Helps Countries in Use of Aid
IMF Survey Jan 6, 2009
A new study shows that IMF-supported programs are designed so that low-income countries can use, within a few years, most or all of the increases in aid they receive, refuting charges by some critics that the IMF restricts use of aid.
US and China Must Tame Imbalances Together
Michael Pettis (YaleGlobal) Jan 6, 2009
The two nations must coordinate fiscal and monetary policy to control the crisis they helped create.
Choices made in 2009 will shape the globe's destiny
Martin Wolf (FT) Jan 6, 2009
Some entertain hopes of restoring the globally unbalanced economic growth of the middle years of this decade. They are wrong. Our choice is between a better balanced world economy and disintegration. And it must be made this year.
Is the new economic geography passé?
Marius Brülhart (VoxEU) Jan 7, 2009
Paul Krugman suggests that his Nobel-prize-winning “core-periphery” model was perhaps more relevant a century ago than today. This appears to be true in terms of overall manufacturing concentrations in Europe and North America, which are unravelling. Large-scale agglomeration forces, however, are alive and well in the developing world, as are localised sectoral clustering phenomena in industrialised countries.
China Losing Taste for Debt From the U.S.
NYT Jan 7, 2009
Beijing is starting to keep more of its money at home, which could have painful effects for U.S. borrowers.
Suspend Negotiations at Doha
Claude Barfield (AEI) Jan 7, 2009
It would be a mistake for the World Trade Organization to restart the multilateral trade negotiations.
Good and bad emerging markets: Stumble or fall?
Economist Jan 8, 2009
Some countries look safer than others.
Germany's Merkel calls for a UN 'economics council'
IHT Jan 8, 2009
The UN should create an economics council to work alongside the Security Council as part of a wide-ranging shake-up of finance, Chancellor Angela Merkel of Germany said.
Of antibiotics and globalisation
Economist Jan 8, 2009
The surprising link between protectionism and pill-popping.
Obama and trade: an alarm sounds
Jagdish Bhagwati (FT) Jan 8, 2009
He needs a stellar crew that will dispel the unions' baseless fear that trade with poor countries harms US workers' wages.
From Wall Street to Africa — The Money Handlers Come Out on Top
Tim Carrington (Globalist) Jan 8, 2009
How are Wall Street's and sub-Saharan Africa's money handlers similar?
Panic could herald dollar rout
John Browne (AT) Jan 9, 2009
When governments rush to engineer solutions to pressing problems, unintended difficulties arise. One possible consequence to the US government's panic response to the economic crisis is a run on the US dollar that could develop rapidly into cascading devaluation.
Empirical evidence on the monetary policy trilemma since 1970
Menzie D. Chinn, Hiro Ito & Joshua Aizenman Jan 9, 2009
Is the trinity impossible? This column traces the evolution of the three aspects of the trilemma – exchange rate stability, monetary independence, and financial integration – across countries over the last four decades. A rise in one trilemma variable does result in a drop of a linear weighted sum of the other two.
Why stabilisation policy should focus on the poor
Ronald U. Mendoza (VoxEU) Jan 11, 2009
Adverse shocks to poor households can cause significant long-term damage to their well being. This column argues that stabilisation policies ought to make protecting vulnerable families and children from shocks a central priority rather than ad hoc and ancillary in development strategies. Countries’ future economic growth and human development are at stake.
In praise of an explicit number for inflation
Frederic Mishkin (FT) Jan 11, 2009
Experience with central banks that have adopted inflation objectives shows that to do so still leaves plenty of flexibility to react to downturns.
Fixing the crisis: Two systemic problems
Axel Leijonhufvud (VoxEU) Jan 12, 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.
Board (in)competence and the subprime crisis
Harald Hau, Johannes Steinbrecher & Marcel Thum (VoxEU) Jan 12, 2009
This column shows that German banks with more competent supervisory board members suffered smaller losses in the subprime crisis. Improving bank governance is therefore desirable – from both the public and private perspectives – and may be more robust than other regulatory tools.
Economics and the crisis of 2008
Daron Acemoglu (VoxEU) Jan 12, 2009
The global crisis is a challenge to and an opportunity for the economics profession. Here one of the profession’s most innovative thinkers reflects on how and why economists failed to see the crisis coming, what they should tell governments to do about it, and what young economists should be working on to help us avoid future crises.
Prolonged Recession Could Shake Euro to Its Core
Lachman, D. (AEI) Jan 13, 2009
There are serious economic problems in Europe that pose a major threat to the euro.
Fixing the financial system
Axel Leijonhufvud (VoxEU) Jan 13, 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.
New WTO Rules Text Brings Old Rifts into Focus
Bridges Weekly Vol. 13, No. 1 Jan 14, 2009
Longstanding differences in some areas of the WTO’s negotiating group on rules appear as entrenched as ever, a draft text released by the chair of the group last month revealed.
Obama Picks Former Mayor Ron Kirk for Top Trade Post
Bridges Weekly Vol. 13, No. 1 Jan 14, 2009
Ron Kirk, a lawyer and former mayor of Dallas, Texas, has been nominated to be Barack Obama’s US Trade Representative, the President-elect announced at a press conference on 19 December.
Exporting to insecure markets
Matthieu Crozet, Pamina Koenig & Vincent Rebeyrol (VoxEU) Jan 14, 2009
Institutional failures impede international trade, but they do not impose uniform costs on firms as tariffs do. This column says that institutional insecurity, in addition to lowering the total volume of trade, may discourage the most productive firms from exporting to a country. Improving governance can then produce big gains from trade.
Is China Losing Its Appetite for External Surpluses?
Nicholas Lardy (PIIE) Jan 14, 2009
After years of piling up huge foreign exchange reserves, China is increasingly seen by many analysts as entering a new phase. These analysts, who have been examining new data on China’s official holdings of foreign exchange reserves, have concluded that China is now experiencing substantial capital outflows and that Chinese reserve growth has essentially stopped.
IMF Helping Counter Crisis Fallout in Emerging Europe
IMF Survey Jan 14, 2009
The financial crisis has hit Europe hard. In an interview, IMF European Department head Marek Belka talks about Europe's prospects for recovery and the principles that guide the Fund as it seeks to help Europe's emerging economies counter the fallout of the crisis.
Where Sweatshops Are a Dream
Nicholas D. Kristof (NYT) Jan 14, 2009
What the world's most impoverished people need isn't fewer sweatshops, but more of them.
The euro hasn’t changed European business cycles
Domenico Giannone, Michele Lenza & Lucrezia Reichlin (VoxEU) Jan 15, 2009
This column argues that the introduction of the euro has not changed the historical pattern of member countries’ business cycle correlations. The IMF outlook for economic activity over the next few years implies that the current recession will not change it either.
Beijing puzzle
Economist Jan 14, 2009
Why is China's trade surplus still growing when its exports have collapsed?
Global: A New Global Liquidity Cycle
Joachim Fels (MS GEF) Jan 14, 2009
As GDP downgrades abound and investors’ gloom thickens, our metrics indicate that a new global liquidity cycle is in the making as excess liquidity has started to expand for the first time in almost three years. This new liquidity cycle will likely help support asset markets, end the recession later this year and prevent lasting deflation.
The Brave New World of Global Finance
Douglas A. Rediker and Heidi Crebo-Rediker (Globalist) Jan 15, 2009
How has the global economic crisis reshaped the geopolitical scene?
How to fix finance
Economist Jan 15, 2008
An influential group makes some provocative proposals for re-regulating global finance.
World economy: Accelerating downhill
Economist Jan 15, 2009
Why China and Germany need to do more to boost demand.
Sovereign wealth funds, governance, and reserve accumulation
Joshua Aizenman & Reuven Glick (VoxEU) Jan 16, 2009
This column provides evidence that there is great deal of difference between the governance standards of the economies in which sovereign wealth funds have been established and the standards of the industrial economies in which they are seeking to invest. It also discusses how the expansion of asset holdings of sovereign wealth funds may reduce official reserve holdings.
Bad news on jobs. Don’t blame trade.
Barbara Kotschwar and Gary Hufbauer (PIIE) Jan 16, 2008
Two pieces of economic data from the end of last year have made headlines.
'What if' becomes the default question
Wolfgang Münchau (FT) Jan 18, 2009
In a worst-case scenario with five or six eurozone defaulters, a full fiscal union would be more probable than a break-up.
Tortoise at the starting gate?
Economist Jan 18, 2009
Hope from the money markets.
The Doha endgame and the future of the WTO
Claude Barfield (VoxEU) Jan 19, 2009
This column says the WTO should suspend its formal negotiations for the next twelve months and attempt to head off a wave of protection in the interim. This would enhance the chances for the ultimate success of the Doha Round.
Was the euro a mistake?
Barry Eichengreen (VoxEU) Jan 20, 2009
2008 was the year of asymmetric financial shocks for the Eurozone, but 2009 will be the year of the symmetric economic shock. All of Europe is slipping simultaneously towards recession and the threat of deflation. Here one of the world’s leading international economists explains that a common monetary policy response is optimal. Euro interest rates should be cut to zero and quantitative easing undertaken, all complemented by fiscal expansion by Eurozone nations that can afford it. What started as the euro’s greatest challenge could be its salvation, but only if policy makers act swiftly.
Seeping in slowly: The WTO and human rights
Susan Ariel Aaronson (VoxEU) Jan 20, 2009
Critics argue that WTO rules are antagonistic to human rights. This column examines how WTO members have sought to promote human rights and trade, and what they have done when these obligations compete. It concludes that WTO rules are not antagonistic to human rights, though some members’ trade policy decisions have created conflicts.
Why Obama must mend a sick world economy
Martin Wolf (FT) Jan 20, 2009
One idea the new US president should propose is a high-level committee to recommend a radical restructuring of global institutions. This would aim to lower the risk of emerging market crises like those that preceded the bubbles in advanced countries.
Wind down the market in five-legged dogs
John Kay (FT) Jan 20, 2009
There was never an economic rationale for structured products on the scale on which they were created.
Five lessons in global diplomacy
Javier Solana (FT) Jan 20, 2009
The accumulation of rules and institutions is what civilisation is built on. Agreed rules make states secure and people free.
World Faces Deepening Crisis, IMF Chief Warns
IMF Survey Jan 21, 2009
The world faces a deepening economic crisis, with the slowdown in advanced economies now spreading to major emerging markets such as China, India, and Brazil, warns IMF Managing Director Dominique Strauss-Kahn.
Japan's new carry trade – the handbag
David Pilling (FT) Jan 21, 2009
Pro-spending policies are needed more than ever to help fix the imbalances that underpinned the credit-fuelled bubble.
US-Peru Trade Deal to Enter Force Despite Labour Objections
Bridges Weekly Vol. 13, No. 2 Jan 21, 2009
George W. Bush, in one of his final official actions as US president, announced on 16 January that a bilateral trade deal with Peru would enter into force at the beginning of next month. The proclamation was made despite recent protests from labour groups and some Democratic members of the US Congress that the Andean nation's labour laws do not adequately protect workers' rights.
Arab Leaders Pledge Economic Cooperation
Bridges Weekly Vol. 13, No. 2 Jan 21, 2009
Arab leaders have vowed to deepen regional economic ties and band together amid global economic turmoil, officials announced earlier this week after the region's first high-level economic summit on social and economic development.
2009: The Year Ahead for WIPO
Bridges Weekly Vol. 13, No. 2 Jan 21, 2009
2009 is poised to be an important year for the World Intellectual Property Organisation as the organisation faces many challenges, particularly in terms of balancing the interests of developing and developed countries and addressing concerns such as public health, food security and climate change.
EU, Cameroon Ink Trade Deal as 'Stepping Stone' to EPA
Bridges Weekly Vol. 13, No. 2 Jan 21, 2009
The European Union and Cameroon signed an interim bilateral trade agreement last week, which the EU billed as a positive step toward a broader regional deal.
Exporting People
Joseph Chamie (YaleGlobal) Jan 21, 2009
A worsening economic crisis could spur the poor to seek jobs in new lands - or even to return home
The value of making commitments externally: Evidence from WTO accessions
Man-Keung Tang & Shang-Jin Wei (VoxEU) Jan 22, 2009
This column studies the growth and investment consequences of WTO/GATT accessions. Accessions tend to raise income but only for countries that were subject to rigorous accession procedures. Commitments associated with accessions are also found to be helpful especially for countries with poor governance.
The temptation of dollar seigniorage
Kosuke Takahashi (AT) Jan 22, 2009
As the United States seeks to finance its ballooning budget deficits by printing more dollars, Japanese economists are increasingly concerned that the excessive use of dollar seigniorage by US financial authorities will further shake confidence in the American currency.
Geithner Hints at Harder Line on China Trade
NYT Jan 22, 2009
Timothy F. Geithner stated that the president believed that China was "manipulating" its currency, signaling a more confrontational approach to a delicate issue.
Fairly happy birthday
Economist Jan 22, 2009
A paean of faint praise to the World Development Report.
The future of finance
Economist Jan 22, 2009
Blank cheques, bankruptcy, nationalisation: the options are dire, but governments must choose between them.
When markets turn
Economist Jan 22, 2009
A parable of how modern finance can go wrong.
Fallible mathematical models
Economist Jan 22, 2009
Mathematical models are a powerful way of predicting financial markets. But they are fallible.
How to make bad banks work
Economist Jan 22, 2009
There are ways for governments to revitalise banks without taking them over.
Fixing finance
Economist Jan 22, 2009
The world now has a chance to make finance work better. It should tread carefully.
Regulating finance
Economist Jan 22, 2009
Financial regulation is essential. That does not make it easy.
Playing financial chicken
Economist Jan 22, 2009
Finance suffers from reverse natural selection.
Why is finance so unstable?
Economist Jan 22, 2009
Why the bubbles keep bubbling up.
The collapse of finance
Economist Jan 22, 2009
The golden age of finance collapsed under its own contradictions. Edward Carr asks why it went wrong and what to do next.
A Stimulus Package for the World
Robert B. Zoellick (NYT) Jan 22, 2009
A vulnerability fund for developing countries could help limit the severity of the international downturn and prevent the contagion of social unrest.
The crisis and how to fix it: Part 1, causes
Ricardo Caballero (VoxEU) Jan 23, 2009
In a pair of Vox columns, one of the world’s most respected macroeconomists suggests that the consensus view of the crisis’s causes and cures is flawed. This first column focuses on the crisis’s deep causes. Global excess demand for safe assets played a role in building the ‘accident waiting’ to happen. Now, investors’ fears of unknown unknowns – Knightian uncertainty – is why the waiting mountains of cash are not acting as “stabilising speculation”.
The crisis and how to fix it: Part 2, solutions
Ricardo Caballero (VoxEU) Jan 23, 2009
Here is an unconventional view of what governments must do. Frozen credit markets prolong the recession and keep us on the edge of financial meltdown. The ineffectiveness of existing policy to kick start credit markets and bank lending is due to investors’ fear of “unknown unknowns”. Ordinary restructuring-and-liquidation recipes won’t work until the government provide insurance against such systemic events. Recent actions by the US and UK get it partially right.
Expect the World Economy to Suffer Through 2009
Ian Bremmer & Nouriel Roubini (WSJ) Jan 23, 2009
Political risk is a bigger factor than ever.
Behavior of Libor in the Current Financial Crisis
Simon Kwan (FRBSF) Jan 23, 2009
This Letter explores the behavior of the risk premium in Libor rates during the current crisis, considering both the credit risk portion and the liquidity risk portion.
Global: Battle of the Gaps
Manoj Pradhan (MS GEF) Jan 23, 2009
Central banks have cut interest rates precipitously over the past several months. Our empirical models, however, suggest that the natural rate of interest has fallen sharply as well in both the US and the euro area. This implies that the real interest rate gap is not quite as large and policy not quite as expansionary as the rapid cuts in policy rates would suggest.
Global Slowdown Damages Progress in Low-Income Countries
IMF Survey Jan 23, 2009
Low-income countries, already weakened by high food and energy prices, are likely to be hit hard by effects of the financial crisis in advanced economies and the global recession, says a panel at an IMF-World Bank meeting with labor unions.
Geithner's China Bash
WSJ Jan 24, 2009
Timothy Geithner's tax oversights drew most of the media attention at his confirmation hearing, but the biggest news is the Treasury Secretary-designate's testimony Thursday that he'll ratchet up one of the Bush Administration's worst habits: China currency bashing.
China responds tartly to U.S. on currency
IHT Jan 24, 2009
Remarks by President Barack Obama's Treasury nominee could "sidetrack" efforts to find the real cause and solution to the financial crisis and could revive trade protectionism, an official said.
Bill Gates's Next Big Thing
Nicholas D. Kristof (NYT) Jan 24, 2009
A peek into a letter Bill Gates will publish on Monday. He's not only going to do more for health and development in the poorest nations and education in America, he is calling for your help, too.
The economic and fiscal consequences of financial crises
Carmen M. Reinhart Jan 26, 2009
Financial crises are historically associated with the “4 deadly D’s”: Sharp economic downturns follow banking crises; with government revenues dragged down, fiscal deficits worsen; deficits lead to debt; as debt piles up rating downgrades follow. For the most fortunate countries, the crisis does not lead to the deadliest D: default, but for many it has.
Bad News Is Better Than No News
L. Gordon Crovitz (WSJ) Jan 26, 2009
We need to know what's mucking up the financial system.
Geithner Is Exactly Wrong on China Trade
Bret Swanson Jan 26, 2009
The dollar-yuan link has been a great boon to world prosperity.
Need to Fix Banking Sector for Stimulus to Work, IMF Chief Says
IMF Survey Jan 26, 2009
Economic stimulus alone cannot pull the world out of the current tailspin and more needs to be done to fix the underlying causes of the crisis, particularly in the banking sector, IMF Managing Director Dominique Strauss-Kahn said.
IMF in discord over renminbi
FT Jan 26, 2009
The International Monetary Fund is caught in a stand-off between members over whether to label China’s currency as “fundamentally misaligned”, a politically explosive move that could stoke global tension over economic imbalances.
Financial regulation reform: The Goodhart Report
Charles Wyplosz (VoxEU) Jan 27, 2009
This column introduces the latest ICMB-CEPR Geneva Report – written this year by Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash Persaud, and Hyun Shin. The report discusses how world leaders should think about financial regulation reform, making a number of specific proposals.
Zero tariffs and high trade costs: EU technical barriers to trade
Natalie Chen & Dennis Novy Jan 27, 2009
This column assesses trade costs for manufacturing industries in the EU. It demonstrates that, although tariffs on trade within the EU were abolished decades ago, significant barriers remain, and countries continue to integrate. Today, the most substantial policy-induced costs are technical barriers to trade, such as packaging and labelling requirements.
World Bank Omerta
WSJ Jan 27, 2009
What the bank knew about Satyam, and when it knew it.
Why dealing with the huge debt overhang is so hard
Martin Wolf (FT) Jan 27, 2009
Countries with large current account surpluses have long demanded an end to the profligate borrowing and spending of the customers upon whom they depended. They should have been careful what they wished for.
What we must do to stop a repeat of this crisis
David Miles (FT) Jan 27, 2009
In setting higher capital requirements we need to ensure they do not operate in an unhelpful pro-cyclical way.
Financial models are no excuse for resting your brain
John Kay (FT) Jan 27, 2009
A model will tell you only what you have already told the model. It cannot replace an understanding of market psychology.
Globalisation and business cycle transmission
Michael J. Artis & Toshihiro Okubo (VoxEU) Jan 28, 2009
This column shows that globalisation reduces business cycle differences between countries– and that this feature is more marked in the current globalisation era than the first.
Geithner gets it wrong on yuan
Sungjoon Cho (AT) Jan 28, 2009
The Barack Obama administration has certainly brought some change to United States policy. Sharply departing from a more engaging China policy, Treasury Secretary Tim Geithner rattled the ground by declaring during his confirmation hearings that China was "manipulating" its currency, the yuan, and vowing that the US would employ "aggressive" means to remedy this.
Keeping borders open during the global downturn: What are the options?
Simon J Evenett (VoxEU) Jan 28, 2009
The current crisis raises serious challenges to the maintenance of open-markets but many policy makers and analysts remain complacent in defending trade openness. This column calls on these actors to defend their convictions, and proposes further debate on the policy options required to get out of the current predicament while protectionism in its many forms.
A $2 trillion question
Gian Maria Milesi-Ferretti (VoxEU) Jan 28, 2009
The crisis has produced a number of highly unusual macroeconomic effects. Preliminary estimates suggest that the US net international investment position deteriorated by over $2 trillion over 2008 ? some 15% of GDP. This column explores the reasons for this unprecedented worsening.
The challenges of trade financing
Marc Auboin (VoxEU) Jan 28, 2009
Some 80% to 90% of world trade relies on trade finance, and there is little doubt that the trade finance market will experience difficult times in the first half of 2009 – difficulties that will contribute the global economic malaise. Public-backed institutions are responding, but are they doing enough?
Getting past the blame game
Eswar Prasad (VoxEU) Jan 28, 2009
The crisis has shattered predictions on the unravelling of global macroeconomic imbalances. The US dollar has resisted rather well, US treasury bonds remain the safe-heaven investment of choice, and the world economy still seems tied to US demand. These elements point to the intensification of global macroeconomic imbalances during the recovery of the global economy. This column proposes global solutions to avoid a new derailment
IMF reform: An unfinished agenda
Edwin M. Truman (VoxEU) Jan 28, 2009
The G20 leaders meeting in London on April 2 should complete the unfinished business of IMF reform. These are essential not only to reinstate the legitimacy and relevance of the IMF but also to support restoration of economic growth and stability to the global financial system.
Reforms of the world financial system: Can the G20 deliver?
Luigi Spaventa (VoxEU) Jan 28, 2009
To fix the world financial system, the G20 needs to look at some bold institutional reforms. The column suggests an international financial stability charter backed up by an new institution that could either be ‘light’ with a slim secretariat, or more elaborate WTO-style organisation.
Can the G20 reform the international economic system?
Charles Wyplosz (VoxEU) Jan 28, 2009
A product of the confused reaction of politicians to the crisis, the G20 forum must prove its usefulness. Rather than striving to coordinate fiscal policy responses, leaders should use the G20 platform to strike common ground on long-term reforms to global financial regulation and supervision, starting by recapitalising the IMF and reforming its governance structures.
Let developing nations rule
Dani Rodrik (VoxEU) Jan 28, 2009
The global crisis is an opportunity for developing nations to project their interests in multilateral institutions, and gain influence in shaping economic globalisation. To make the best of this outcome, developing nations need a good sense of their interests and priorities, but also to recognize that having a greater say entails acceptance of greater responsibilities.
The future of securities regulation
Luigi Zingales (VoxEU) Jan 28, 2009
In 1933, US securities regulations were introduced to restore trust in financial markets. Today, a new regulatory focus is needed to address the crisis of confidence. After reviewing the status of financial regulation, this column sketches policy proposals in three key areas of securities markets.
WTO Report Finds 'Limited Evidence' of Protectionism amidst Economic Crisis
Bridges Weekly Vol. 13, No. 3 Jan 28, 2009
WTO Members have not resorted to full-fledged protectionism amidst the ongoing global economic turmoil, a report from the office of WTO Director-General Pascal Lamy concluded earlier this week. But as the crisis continues, countries could still raise new trade barriers to protect domestic industries even while respecting their WTO commitments, Lamy warned in the 14-page report that was distributed to WTO Members.
WHO Executive Board Grapples with IP Issues
Bridges Weekly Vol. 13, No. 3 Jan 28, 2009
Intellectual property was one of the contentious issues debated at the recent World Health Organisation Executive Board meeting, which concluded on Tuesday after just over a week of talks.
Done with depreciation?
Economist Jan 28, 2009
Russia arrests the decline of the rouble.
World Growth Grinds Almost To a Halt, IMF Urges Decisive Global Policy Response
IMF Survey Jan 28, 2009
The IMF has sharply revised downwards its forecast for world growth in 2009 and urges policymakers to take more decisive policy action.
Global Recession Triggers Slump in World Trade Volumes
IMF Survey Jan 28, 2009
Global output and trade plummeted in the final months of 2008, and the IMF said it expects world trade volumes to contract this year, falling by 2.8 percent.
At Davos, economic gloom is the order of the day
IHT Jan 28, 2009
Even the IMF says the global economy will grow at the weakest pace since World War II. At this year's annual meeting of the World Economic Forum, precious few attendees are prepared to make a prediction for the global economy.
China, US play currency chicken
Axel Merk (AT) Jan 29, 2009
US Treasury Secretary Timothy Geithner's proclamation that China is manipulating its currency no doubt sounds macho in Washington while also insulting Beijing. It also ignores US efforts to massage the dollar. Self-interest is the name of the game, and confession to that effect would be more productive for Geithner.
Why this Financial Crisis Could Have Been Worse
Arvind Subramanian (PIIE) Jan 29, 2009
When the history of the impact of this global financial crisis on emerging markets is written, two questions that will have to be answered are whether residents in emerging market countries behaved differently from nonresidents and indeed differently from the way they behaved in the earlier emerging market crises of the 1990s; and if so, why?
Will the crisis wipe out small carry traders in Central and Eastern Europe?
Raphael Auer, Martin Brown, Andreas Fischer & Marcel Peter (VoxEU) Jan 29, 2009
Some policymakers are worried that Central and Eastern European firms and households that recently joined the carry trade are unprepared for the financial crisis’s macroeconomic shocks. This column presents micro-level evidence that the currency exposure is concentrated in households and firms that are better equipped to bear the risks, suggesting that aggregate risks may be smaller than feared.
Global: Could Hyperinflation Happen Again?
Joachim Fels & Spyros Andreopoulos (MS GEF) JAn 29, 2009
The risk of hyperinflation cannot be dismissed very easily any longer, in our view. We discuss the historical evidence, the conditions that can lead to very high or hyperinflation, and whether and how it might happen again.
Troubled tigers
Economist Jan 29, 2009
Asia needs a new engine of growth.
A proposal to prevent wholesale financial failure
Lasse Pedersen and Nouriel Roubini (FT) Jan 29, 2009
Bank regulation, such as the Basel accord, ignores systemic risk since it analyses the risk of each bank in isolation.
Global Worries Over U.S. Stimulus Spending
NYT Jan 29, 2009
The long-term fallout from increased borrowing by the U.S. government seems to getting more attention in Davos than in Washington.
Currency “manipulation” and world trade: Three reasons for caution
Robert W. Staiger & Alan O. Sykes (VoxEU) Jan 30, 2009
Many critics argue that Chinese currency undervaluation amounts to an export subsidy and import tariff responsible for global trade imbalances. This column cautions against that equivalence. In the long run, currency devaluation does not alter export volumes, and in the short run, its effects depend on firms’ invoicing decisions. Policymakers should take care before turning to trade sanctions as a remedy.
(Nearly) nothing to fear but fear itself
Olivier Blanchard (Economist) Jan 29, 2009
In a guest article, Olivier Blanchard says that policymakers should focus on reducing uncertainty
Protectionism as Stimulus
WSJ Jan 30, 2009
We need to trade more, not less.
Sovereign Debt Risk Looms Large This Year
Ulrich Volz (WSJ) Jan 30, 2009
The U.S. shouldn't consume all the available lending.
Leaders Go Left, But Economists Get Back To Basics
William Easterly (Forbes) Jan 30, 2009
In trying times, even protectionists go free market.
Financial regulation built on sand: Today’s microprudential regulation rules need macroprudential complements
Hyun Song Shin (VoxEU) Jan 31, 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.
If We Buy American, No One Else Will
Douglas A. Irwin (NYT) Jan 31, 2009
A provision in the stimulus bill that gives preference to domestic steel companies in building contracts may seem reasonable, but in reality could prolong the global recession.