Download or read book Monetary Policy and Debt Fragility written by Antoine Camous and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of government debt is subject to strategic uncertainty, stemming from investors' sentiments. Pessimistic lenders, fearing default, bid down the price of debt. This leaves a government with a higher debt burden, increasing the likelihood of default and thus confirming the pessimism of lenders. This paper studies the interaction of monetary policy and debt fragility. It asks: do monetary interventions mitigate debt fragility? The answer depends in part on the nature of monetary policy, particularly the ability to commit to future state contingent actions. With commitment to a state contingent policy, the monetary authority can indeed overcome strategic uncertainty. Under discretion, debt fragility remains.

Download or read book Leveraged written by Moritz Schularick and published by University of Chicago Press. This book was released on 2022-12-13 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt: An authoritative guide to the new economics of our crisis-filled century. Published in collaboration with the Institute for New Economic Thinking. The 2008 financial crisis was a seismic event that laid bare how financial institutions’ instabilities can have devastating effects on societies and economies. COVID-19 brought similar financial devastation at the beginning of 2020 and once more massive interventions by central banks were needed to heed off the collapse of the financial system. All of which begs the question: why is our financial system so fragile and vulnerable that it needs government support so often? For a generation of economists who have risen to prominence since 2008, these events have defined not only how they view financial instability, but financial markets more broadly. Leveraged brings together these voices to take stock of what we have learned about the costs and causes of financial fragility and to offer a new canonical framework for understanding it. Their message: the origins of financial instability in modern economies run deeper than the technical debates around banking regulation, countercyclical capital buffers, or living wills for financial institutions. Leveraged offers a fundamentally new picture of how financial institutions and societies coexist, for better or worse. The essays here mark a new starting point for research in financial economics. As we muddle through the effects of a second financial crisis in this young century, Leveraged provides a road map and a research agenda for the future.

Download or read book Financial Fragility Debt and Economic Reforms written by Sunanda Sen and published by Springer. This book was released on 2016-07-27 with total page 273 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present volume articulates a state of concern with the destabilising and the growth retarding effects of current world finance relations. Emphasis laid in this volume on finance is justified, not only in terms of its dominance over real activities in the world economy but also with its influence on the pace of economic reforms in the debt-ridden countries. A large number of essays in this volume deals with the recent pattern of capital flows in the world economy. The latter has been of a high priority in the agenda for research in economics in recent times, especially with tendencies for financial fragility in the major financial markets and the enforcing of the structural adjustment programmes in the developing countries as a part of loan conditionalities. The volume provides a rich analysis of contemporary international finance relations, with individual chapters contributed by reputed economists who have made significant contributions to the literature.

Download or read book Debt Financial Fragility and Systemic Risk written by E. Philip Davis and published by Oxford University Press. This book was released on 1995 with total page 406 pages. Available in PDF, EPUB and Kindle. Book excerpt: A remarkable feature of the period since 1970 has been the patterns of rapid and turbulent change in financing behavior and financial structure in many advanced countries. This book explores, in theoretical and empirical terms, the nature of the relationships between the underlying phenomena--levels and changes in debt, vulnerability to default in the corporate and household sectors, and systematic risk in the financial sector. The book focuses on the generality of this phenomena--whether similar patterns are observable in certain countries, as well as in the international capital markets themselves. Emphasis is placed to the importance of the nature and evolution of financial structure to the genesis of instability. Given the international scope of the analysis, the work is germane to the study of the development of financial systems in all advanced countries, as well as the euromarkets.

Download or read book Financial Crises Monetary Policy and Financial Fragility written by Sylvester C. W. Eijffinger and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Systemic Fragility in the Global Economy written by Dr, Jack Rasmus and published by SCB Distributors. This book was released on 2016-01-08 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt: Just as contemporary economics failed to predict the 2008-09 crash, and over-estimated the subsequent brief recovery that followed, economists today are again failing to accurately forecast the slowing global economic growth, the growing fragility, and therefore rising instability in the global economy. This book offers a new approach to explaining why mainstream economic analyses have repeatedly failed and why fiscal and monetary policies have been incapable of producing a sustained recovery. Expanding upon the early contributions of Keynes, Minsky and others, it offers an alternative explanation why the global economy is slowing long term and becoming more unstable, why policies to date have largely failed, and why the next crisis may therefore prove even worse than that of 2008- 09. Systemic fragility is rooted in 9 key empirical trends: slowing real investment; a drift toward deflation; money, credit and liquidity explosion; rising levels of global debt; a shift to speculative financial investing; the restructuring of financial markets to reward capital incomes; the restricting of labor markets to lower wage incomes; the failure of Central Bank monetary policies; and the ineffectiveness of fiscal policies. It results from financial, consumer, and government balance sheet fragilities exacerbating each other -- creating a massive centripetal force disaggregating and tearing apart the whole, untameable by either fiscal or monetary means. This book clarifies how the price system in general, and financial asset prices in particular, transform into fundamentally destabilizing forces under conditions of systemic fragility. It explains why the global system has in recent decades become dependent upon, and even addicted to, massive liquidity injections, and how fiscal policies have been counterproductive, exacerbating fragility and instability. Policymakers’ failure to come to grips with how fundamental changes in the structure of the 21st century global capitalist economy—in particular in financial and labor market structures—make the global economy more systemically fragile can only propel it toward deeper instability and crises.

Download or read book Fragile Finance written by A. Nesvetailova and published by Springer. This book was released on 2007-10-17 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fragile Finance examines financial crisis in the era of global credit. Drawing on the work of Hyman Minsky, the book discusses the global financial system over the past decade, suggesting that financial fragility stems from an explosive combination of financial innovation, over-borrowing, and progressive illiquidity of financial structures.

Download or read book Fiscal Deficits Financial Fragility and the Effectiveness of Government Policies written by Markus Kirchner and published by . This book was released on 2016 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent macro developments in the euro area have highlighted the interactions between fiscal policy, sovereign debt, and financial fragility. We take a structural macroeconomic model with frictions in the financial intermediation process, in line with recent research, but introduce asset choice and sovereign debt holdings in the portfolio of banks. Using this model, we emphasize a new crowding-out mechanism that works through reduced private access to credit when banks accumulate sovereign debt under a leverage constraint. Our results show that, when banks invest a substantial fraction of their assets in sovereign debt, the effectiveness of fiscal stimulus policies may be impaired because deficit-financed fiscal expansions may tighten financial conditions to such an extent that private demand is crowded out. We also analyze the macroeconomic effectiveness of liquidity support to commercial banks through recapitalizations or loans by the government and the impact of different ways of financing those policies.

Download or read book Financial Fragility Bubbles and Monetary Policy written by Gerhard Illing and published by . This book was released on 2013 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper models the links between financial fragility, asset markets and monetary policy. It is shown that central bank's concern about the cost of financial disruption generates an asymmetric response, thus contributing to the creation of an asset price bubble. In an economy with a highly leveraged financial structure, the central bank has an incentive to prevent a quot;runquot; on financial intermediation by injecting liquidity when asset values fall significantly. The inflationary side effect of this policy reduces the real value of nominal debt and so gives rise to a quot;put optionquot; for investors, driving up asset prices above their fundamental value. The paper shows that the size of such a bubble is likely to be rather small. The bubble is only equal to the expected value of capital gains on outstanding debt, which are fairly limited in a crisis. Since, in contrast, the gains from preventing the disruption of financial intermediation can be quite large, it is rational for a central bank to inject liquidity in a crisis.

Download or read book Fragile by Design written by Charles W. Calomiris and published by Princeton University Press. This book was released on 2015-08-04 with total page 584 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why stable banking systems are so rare Why are banking systems unstable in so many countries—but not in others? The United States has had twelve systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households. Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries, Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents. Calomiris and Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why they endure, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues. Fragile by Design is a revealing exploration of the ways that politics inevitably intrudes into bank regulation.

Download or read book Macroeconomics and Financial Fragility written by Nicolás Eduardo Caramp and published by . This book was released on 2017 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters. Chapter 1 studies the interaction between the ex-ante production of assets and ex-post adverse selection in financial markets. Positive shocks that increase market liquidity and prices exacerbate the production of low-quality assets and can increase the likelihood of a financial market collapse. An increase in government bonds increases total liquidity and reduces the incentives to produce bad assets, but can exacerbate adverse selection in private asset markets. Optimal policy balances these two effects, requiring more issuances when the liquidity premium is high. I also study transaction taxes and asset purchases, showing that policy should lean against the wind of market liquidity. Chapter 2, joint work with David Colino and Pascual Restrepo, studies how consumer durables amplify business cycle fluctuations. We show that employment in durable manufacturing industries is more cyclical than in other industries, and that this cyclicality is amplified in general equilibrium. We provide evidence of three mechanisms that generate amplification. First, employment changes propagate through input-output linkages. Second, the reduction of employment in durables negatively affects employment in non-tradable sectors. Third, workers do not completely reallocate to other less cyclical tradable industries. Chapter 3, joint work with Dejanir Silva, studies how the level, maturity structure and characteristics of government debt affects the severity of crises and the effectiveness of stabilization policies. We find that both fiscal and monetary policies become less powerful in high debt economies, and that in response to a preference shock that pushes the economy into a liquidity trap, high debt economies experience larger and more prolonged recessions. Long-term bonds and indexed debt improve the effectiveness of stabilization policies.

Download or read book Swing Pricing and Fragility in Open end Mutual Funds written by Dunhong Jin and published by International Monetary Fund. This book was released on 2019-11-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.

Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Download or read book A Crisis of Beliefs written by Nicola Gennaioli and published by Princeton University Press. This book was released on 2018-09-11 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: How investor expectations move markets and the economy The collapse of Lehman Brothers in September 2008 caught markets and regulators by surprise. Although the government rushed to rescue other financial institutions from a similar fate after Lehman, it could not prevent the deepest recession in postwar history. A Crisis of Beliefs makes us rethink the financial crisis and the nature of economic risk. In this authoritative and comprehensive book, two of today’s most insightful economists reveal how our beliefs shape financial markets, lead to expansions of credit and leverage, and expose the economy to major risks. Nicola Gennaioli and Andrei Shleifer carefully walk readers through the unraveling of Lehman Brothers and the ensuing meltdown of the US financial system, and then present new evidence to illustrate the destabilizing role played by the beliefs of home buyers, investors, and regulators. Using the latest research in psychology and behavioral economics, they present a new theory of belief formation that explains why the financial crisis came as such a shock to so many people—and how financial and economic instability persist. A must-read for anyone seeking insights into financial markets, A Crisis of Beliefs shows how even the smartest market participants and regulators did not fully appreciate the extent of economic risk, and offers a new framework for understanding today’s unpredictable financial waters.

Download or read book Three Episodes of Financial Fragility in Norway Since the 1890s written by Karsten R. Gerdrup and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides for the first time a comparative study of three major banking crises in Norway (1899-1905, 1920-28 and 1988-92), and presents financial and macroeconomic data spanning more than 130 years. Financial sector development appears to be closely linked to booms and busts in economic activity during these years. The boom periods that preceded each of the three crises all have some common features: they were characterised by significant bank expansion, considerable asset price inflation and increased indebtedness. The non-financial sector increased its debt only slightly more than its income during the first two boom periods, but subsequent deflation increased its debt burden. A puzzle in the two first boom periods was that the commercial bank equity-to-total assets ratio increased markedly. Nonetheless, the commercial banks were severely affected in the each subsequent bust. Possible explanations are provided, but this puzzle calls for more research. Altogether, a strong causal link between financial fragility and banking crises is suggested. The crises occurred in different institutional environments and monetary policy regimes, and the role of these is explored and policy lessons are drawn. In particular, the close link between monetary and financial stability is highlighted.

Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Download or read book The COVID 19 Impact on Corporate Leverage and Financial Fragility written by Sharjil M. Haque and published by International Monetary Fund. This book was released on 2021-11-05 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the impact of the COVID-19 recession on capital structure of publicly listed U.S. firms. Our estimates suggest leverage (Net Debt/Asset) decreased by 5.3 percentage points from the pre-shock mean of 19.6 percent, while debt maturity increased moderately. This de-leveraging effect is stronger for firms exposed to significant rollover risk, while firms whose businesses were most vulnerable to social distancing did not reduce leverage. We rationalize our evidence through a structural model of firm value that shows lower expected growth rate and higher volatility of cash flows following COVID-19 reduced optimal levels of corporate leverage. Model-implied optimal leverage indicates firms which did not de-lever became over-leveraged. We find default probability deteriorates most in large, over-leveraged firms and those that were stressed pre-COVID. Additional stress tests predict value of these firms will be less than one standard deviation away from default if cash flows decline by 20 percent.