Found 427 article(s) in category 'Q3: Financial Crisis?'

HOW DO WE PREVENT THE NEXT FINANCIAL CRISIS?

The posts collected here explore the causes of the global financial crisis and its short- and long-term consequences. They include a multitude of proposals for preventing and mitigating financial crises in the future.

The Long and Winding Road to a Haircut

The Long and Winding Road to a Haircut. Carmen Reinhart, November 30, 2017, Opinion, “There are significant differences between Puerto Rico and Venezuela regarding the origins of their economic crises, their political systems, their relationship with the US and the rest of the world, and much else. Nonetheless, some notable similarities are likely to emerge as their debt sagas unfold.Link

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‘It’s crazy for a president to wrap himself in the stock market’

‘It’s crazy for a president to wrap himself in the stock market. Lawrence Summers, November 8, 2017, Audio, “Larry Summers thinks it’s “crazy” that President Donald Trump spends so much time bragging about how great he’s been for the stock market.  The former Treasury secretary and current Harvard professor argues that Trump, who tweets regularly about new stock market records, is setting himself up for a crushing blow if markets tumble.Link

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Mortgage-Default Research and the Recent Foreclosure Crisis

Mortgage-Default Research and the Recent Foreclosure Crisis. Christopher Foote, October 2017, Paper, “This paper reviews recent research on mortgage default, focusing on the relationship of this research to the recent foreclosure crisis. Research on defaults was advanced both theoretically and empirically by the time the crisis began, but economists have moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices. Mortgage defaults were also a key component of early research that pointed to subprime and other privately securitized mortgages as fundamental drivers of the housing boom, although this research has been criticized recently. Going forward, improvements to data and models will allow researchers to explore the central unsolved question in this area: why mortgage default is so rare, even for households with high levels of negative equity or financial distress.Link

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Venting Out: Exports during a Domestic Slump

Venting Out: Exports during a Domestic Slump. Pol Antras, October 23, 2017, Paper, “Using Spanish firm level data for the period 2000-2013, we explore the differences in the export behavior of firms during the years of sustained economic growth, 2000-2008, and during the Great Recession years, 2009-2013. Exploiting geographical variation in the reduction in domestic demand caused by the financial crisis, we document empirically the existence of a robust, within-firm negative causal relationship between domestic sales and export flows: firms whose domestic sales were reduced by more during the crisis observed a larger increase in their export flows. This negative relationship between domestic sales and export flows reflects the capacity of export markets to counteract the negative impact of local demand shocks.Link

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Four Proposals to Help Commodity Exporters Cope with Price Volatility

Four Proposals to Help Commodity Exporters Cope with Price Volatility. Jeffrey Frankel, October 17, 2017, Paper, “Financial markets have done little, if anything, to moderate the impact of commodity price volatility on the exporting countries. This column reviews four proposals to make exporters less vulnerable to volatility – two attempts at appropriate financial engineering, and two attempts at countercyclical macroeconomic policy. One in each category is tried and tested; the other two have hardly been tried.Link

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Building Emergency Savings Through Employer-Sponsored Rainy Day Savings Accounts

Building Emergency Savings Through Employer-Sponsored Rainy Day Savings Accounts. John Beshears, David Laibson, October 2017, Paper, “Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks (Angeletos et al. 2001; Kaplan and Violante 2014). One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. For every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement (Argento, Bryant, and Sabelhaus 2015). We explore the practical considerations and challenges of helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. We believe that this can be achieved cost effectively by automatically enrolling workers into an employer-sponsored payroll deduction “rainy day” or “emergency” savings account, and present three specific implementation options.Link

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Rethinking Macroeconomic Policy: International Economy Issues

Rethinking Macroeconomic Policy: International Economy Issues. Gita Gopinath, October 10, 2017, Paper, “In this paper I make the following ten remarks on the topics of exchange rate policy, capital flow management, protectionism, and global cooperation: 1) The gains to exchange rate flexibility are worse than you think; 2) The ‘Trilemma’ lives on; 3) The U.S. dollar exchange rate drives global trade prices and volumes; 4) Gross capital flows matter as much as net flows, and global banks have internationalized U.S. monetary policy. 5) Emerging markets tilt away from foreign currency to local currency debt reduces their exposure to global risk factors; 6) Low interest rate environments can lead to misallocation of resources and lower productivity; 7) The relationship between global imbalances, reserve accumulation, and currency manipulation is not well identified. 8) Uniform border taxes are not neutral; 9) Trade is not the main driver of earnings inequality, but at the same time policy has failed to address its redistributive consequences. 10) Global coordination of financial regulation is essential alongside country level macroprudential polices. Reserve accumulation and currency swap lines do not substitute for the lender of last resort role of the IMF.” Link

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Why Financial Markets Underestimate Risk

Why Financial Markets Underestimate Risk. Jeffrey Frankel, September 25, 2017, Opinion, “Today’s economy is in a “risk-on” period, when investors exchange safe-haven assets like US Treasury Bills for riskier ones, from real estate to carry-trade currencies. But when such behavior assumes that economic conditions are more stable than they are, as seems to be the case today, trouble inevitably follows.Link

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The Fear Factor in Today’s Interest Rates

The Fear Factor in Today’s Interest Rates. Carmen Reinhart, September 23, 2017, Opinion, “Atlantic-hugging policymakers and pundits, buffered by a continent and a large ocean, may not fully appreciate the significant effect on global financial markets that the threat posed by North Korea has had in recent months. But competition for safe assets has clearly heated up.Link

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