Financial crisis
Lifetime achievement award: Perng Fai-nan
Pre-emptive financial reforms combined with flexible monetary and forex policies have enabled Taiwan’s veteran governor to provide economic stability, even during turbulent times
BoE commits to improving liquidity facilities
Report says central bank could do more to ensure smooth operations
Financial regulations have been procyclical historically – research
Regulations tend to weaken during economic booms and strengthen with crisis
Short-selling bans increased instability – ESRB paper
Banks’ volatility, leverage and default probability increased by bans on short-selling – researchers
German coalition talks open possibility of reformed ESM
European Commission proposed creating a new institution to lead crisis programmes in December
Central banks lack ‘firepower’ to combat financial crises, says report
Without interest rate cuts available, the next financial crisis could be much “longer and deeper”, Global Risk Report says
Auditors find ‘flaws’ in ECB’s crisis management framework
ECB must improve co-ordination with SRB and national supervisors – report
German savings banks may buy debt to gain political favour, ECB paper says
Research warns this behaviour increases interdependence between banks and governments
Economists need to better understand macrofinancial links – BIS paper
Stijn Claessens and Ayhan Kose call for “new generation of models” among other research to solve ongoing puzzles
Minneapolis Fed launches too-big-to-fail plan
The four-step plan proposes stricter capitalisation rules for big banks and looser regulation for smaller institutions
IMF’s Obstfeld: effects of accommodative policy remain unclear
The IMF chief economist weighs up the productivity puzzle and whether monetary policy helped or hindered growth following the financial crisis
Fed could use rates to counter instability – Mester
2015 exercise showed major problems in use of macro-prudential tools, says Cleveland Fed chief
‘Decisive’ action needed to deflate China’s credit boom – IMF paper
Lack of reliance on foreign financing, low government debt, and state control help to mitigate effects of credit boom, but buffers should not be relied upon in the long run
Book notes: The End of Theory, by Richard Bookstaber
Bookstaber provides an entertaining introduction to agent-based modelling – a potential new front for economics
BIS paper asks what makes emerging market banks profitable
Both bank-specific and economy-wide factors affect banks’ profitability, authors find
Veteran economists weigh in on ‘rebuilding’ macro theory
Economists including Olivier Blanchard, Andy Haldane and Simon Wren-Lewis tackle the question of how – and whether – to save the DSGE model
BoE paper outlines big-data-based early warning indicator
Text mining approach seeks to capture how narratives can drive action in financial markets
Balancing reserves’ effectiveness and transparency
Why do countries accumulate more and more reserves if they know intervention may prove ineffective? Iris Yeung speaks to Canada’s Eric Wolfe
ECB corporate bond purchases fall to lowest level in December
CSPP is expected to rebound in January, while the ECB reduces QE to €30 billion a month
Colombian paper says resolution co-operation is needed in the region
Authors examine how resolution plans have evolved and conclude more work can be done with regard to local systemically important financial institutions and cross-border activities
Complex instruments still pose systemic risks – paper
Discretion granted by financial reporting standards increases opacity and complexity, say authors
Book notes: Money in the Great Recession, by Tim Congdon
A stimulating collection of papers on the monetarist theory that had central bankers in late 2008 focused on boosting the quantity of broad money “the Great Recession would not have happened”
BIS issues new ‘streamlined’ stress test principles
Banks have made significant advances in stress testing since financial crisis, Basel Committee says; issues new ‘guidelines’ that focus on stress test evolution
Fed paper sets out model of financial panics
Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino examine banking panics in a DSGE model