Financial crisis
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
Irish paper proposes three-phase model of volatility in bond markets
Irish paper finds ‘good’, ‘bad’ and ‘ugly’ phases in eurozone sovereign debt markets from 2003 to 2014; crisis not caused by changes to the shock mechanism, but by pre-existing cross-country links
BIS: Central banks playing for 'high stakes' as financial cycles turn
Central banks need to lean against financial cycles but fiscal policy should come to their aid, BIS says; cycles may be turning in opposite directions in advanced and emerging economies
Negative rates fail to dent Danish bank profitability
National Bank of Denmark concerned banks may be pursuing return targets too aggressively, as profits hit highest level since 2008 crisis; banks reshaping business models to avoid low-rate impact
Micro factors affect Italian banks’ sovereign debt purchases, paper argues
Italian banks’ sovereign debt purchases strongly affected by their balance sheet needs, Bank of Italy researchers argue; size of bank a key factor
ECB papers take detailed look at bond market data
Two papers from the European Central Bank take a detailed look at data on the development of credit spreads in eurozone corporate bonds