exchange arrangements entering the twenty first century which anchor will hold this article provides a comprehensive history of anchor or reference currencies exchange rate arrangements and a new measure of foreign exchange restrictions for 194 countries and territories over 1946 2016 we find that the often cited post bretton woods transition from fixed to flexible arrangements is overstated regimes with limited flexibility remain in the majority even if central bankers communications jargon has evolved considerably in recent decades it is apparent that many still place a large implicit weight on the exchange rate the u s dollar scores as the world s dominant anchor currency by a very large margin by some metrics its use is far wider today than 70 years ago in contrast the global role of the euro appears to have stalled we argue that in addition to the usual safe assets story the record accumulation of reserves since 2002 may also have to do with many countries desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or more broadly capital controls an important amendment to the conventional portrayal of the macroeconomic trilemma

using labels to investigate scope effects in stated preference methods insufficient sensitivity to scope variations in the scale of the environmental good on offer remains a major criticism of stated preference methods and many studies fail a scope test of some sort across a range of existing explanations for insensitivity to scope commodity mis specification embedding warm glows there seems to exist no clear conclusion on how to deal with the problem this paper provides an alternative explanation for insufficient sensitivity to scope based on re definition of the determinants of value for environmental goods within an attributes based choice model in the proposed framework respondents willingness to pay need depend not only on physical characteristics of a good but may also depend on the label under which the environmental good is sold in the hypothetical market to investigate this problem a choice experiment study of biodiversity was conducted we find that controlling for the effects of a label in this case national park designation leads to significant increase in the scope sensitivity of welfare measures

financial intermediary capital we propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households that is have a collateralization advantage intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth the net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity such as investment and financing the accumulation of net worth of intermediaries is slow relative to that of the corporate sector the model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch namely their severity their protractedness and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns the model captures the tentative and halting nature of recoveries from crises

the great moderation in international capital flows a global phenomenon abstract this paper highlights a recent great moderation in global capital flows characterised by smaller volumes and lower volatility of cross border transactions however there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005 06 immediately prior to the onset of the global financial crisis to the post crisis period of 2013 14 when global flows arguably settled at a new normal we find that since the pre crisis period gross capital inflows recovered more for economies with smaller pre crisis external and internal imbalances lower per capita income improving growth expectations a less severe impact of the global financial crisis and less stringent macroprudential policy on the asset side countries with a more accommodative monetary policy a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post crisis period

deleveraging deflation and depreciation in the euro area abstract during the post crisis period economic performance has been highly heterogenous across the euro area while some economies rebounded quickly after the 2009 output collapse others are undergoing a protracted further decline as part of an extensive deleveraging process at the same time inflation has been subdued throughout the whole of the euro area and intra euro area exchange rates have hardly moved we interpret these facts through the lens of a two country model of a currency union we find that deleveraging in one country generates deflationary spillovers which cannot be contained by monetary policy as it becomes constrained by the zero lower bound as a result the real exchange rate response becomes muted and the output collapse concentrated in the deleveraging economies

financial crises output losses and the role of structural reforms financial crises take a heavy toll on output growth we assess the role of structural reforms in reducing the output losses resulting from financial crises across advanced economies emerging and developing economies and low income developing economies we also revisit the role of macroeconomic policies in this context the impact of crises on output growth differs between types of crises and economies thus warranting sample splits along these lines some but not all reforms and policies help to reduce the output losses of crises in the medium term highlighting the need not to overgeneralize the effectiveness of reforms and policies further research is warranted to further explore the heterogeneity in the impact of financial crises on output growth and to better understand when and how specific structural reforms and macroeconomic policies can mitigate the output costs of financial crises jel e32 e44 e63 g28 o47

the antecedents and aftermath of financial crises as told by carlos f diaz alejandro some of the best known papers of carlos f diaz alejandro were about latin america s crises in the 1980s and 1930s i show data figures and evidence about the crises in the advanced economies thirty years later that fit the same narrative his unadulterated words aptly describe modern problems across geographical borders and in this case income levels this attests to his timeless insight and understanding because some of the observations he made have general applicability to the study of recurring patterns across crises i have taken the liberty to label these lessons these are primarily lessons about what to avoid

time varying capital requirements and disclosure rules effects on capitalization and lending decisions we investigate how banks capital and lending decisions respond to changes in bank specific capital and disclosure requirements we find that an increase in the bank specific regulatory capital requirement results in a higher bank capital ratio brought about via less asset risk a decrease in the requirement implies more lending to firms but also less tier 1 capital and higher bank leverage we do not observe differences between confidential and public disclosure of capital requirements our results empirically illustrate a tradeoff between bank resilience and a fostering of the economy through more bank lending using banks capital requirement as policy instrument

household wealth and macroeconomic activity 2008 2013 this paper provides estimates of the effects of the fall in financial and housing wealth in 2008 09 on overall macroeconomic activity when the wealth losses are run through a structural macroeconometric model it is estimated that the fall in wealth contributed about 2 1 percentage points to the rise in the unemployment rate in 2009 and about 3 3 points in 2010 the contribution to the fall in real gdp was 4 5 and 5 4 in the 2 years these estimates account for most but not all of the recessionary increase in unemployment the remaining increase in unemployment may have resulted more directly from financial stresses but little evidence is found for this in this study

the welfare costs of self fulfilling bank runs we study the welfare implications of self fulfilling bank runs and liquidity require ments in a neoclassical growth model where banks facing long lasting possible runs can choose in any period a run proof asset portfolio in this framework runs distort banks insurance provision against idiosyncratic liquidity shocks and liquidity requirements re solve this distortion by forcing a credit tightening quantitatively the welfare costs of self fulfilling bank runs are equivalent to a constant consumption loss of up to 2 5 percent of u s gdp depending on fundamentals liquidity requirements might generate small welfare gains but also increase the welfare costs by up to 1 8 percent

macro financial linkages the role of the institutional framework abstract in this paper we assess the quantitative impact of various financial shocks on the real activity and explicitly address the issue of heterogeneity in the macro financial linkages for that purpose we use var models as well as the local projection method for 18 oecd countries based on quarterly data between 1995 and 2014 we take into account three main dimensions of the institutional framework likely to explain the observed cross country heterogeneity in the propagation of financial shocks the product market regulation the employment protection and the financial structure our main findings indicate that financial shocks have a stronger impact in countries characterized by a higher competition friendly regulatory stance a stronger employment protection and a more market oriented financial structure we also show that the varieties of capitalism described by the particular mix of different institutional arrangements do not play a significant role in shaping the macro financial linkages this result suggests that although considered individually goods labor and financial markets regulations are robustly linked to macroeconomic fluctuations there is no prima facie evidence for superior performance of any given mix of institutional arrangements observed in oecd countries

what explains the speed of recovery from banking crises abstract while a large body of research has explored the causes and effects of banking crises less is known about what determines recovery from banking crises despite large variations in post crisis performances across countries in order to identify local and global factors that determine the length of recovery i e the time it takes until countries reach their pre crisis level of per capita gdp this exploratory paper employs event history analysis on 138 incidents of banking crises between 1970 and 2012 regarding domestic factors the simultaneous occurrence of currency crises large financial sectors overvalued currencies and large primary deficits are associated with later recovery whereas higher debt to gdp ratios or inflation levels do not exhibit a negative effect on post crisis performances regarding external factors a low growth of world trade as well as indicators of uncertainty in financial markets are correlated with later recovery global interest rate shocks are particularly harmful for the speed of recovery among middle income countries with a strong reliance on external capital the results are similar when using the length of recessions as an alternative indicator of post crisis performances

explaining foreign support for china s global economic leadership we analyze the factors that increase the likelihood that other nations will follow china s global economic leadership while our theoretical framework incorporates the conventional argument that china pulls in followers with economic benefits we focus on grievances with the current global order that have the effect of pushing countries toward the rising new leader we find that grievances about global financial instability are particularly important push factors our results show that countries that have experienced more financial crises more variable capital account policies more volatile portfolio capital outflows and more social unrest during imf programs are more likely to support china s global leadership than leaders of nations that have been less exposed to these problems we find no evidence that grievances about global governance or grievances about discriminatory us trade policies are related to foreign support for china s global economic leadership overall our evidence is consistent with the interpretation that leaders want to reform and preserve the wto and the imf which have worked reasonably well for them under us leadership at the same time they have incentives to follow china s economic leadership on global capital flows emphasizing long term infrastructure and development finance over short term flows which under the current order have imposed large costs on many economies

the permanent effects of fiscal consolidations abstract the global financial crisis has permanently lowered the path of gdp in all advanced economies at the same time and in response to rising government debt levels many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates we empirically explore the connections between these two facts by extending to longer horizons the methodology of blanchard and leigh 2013 regarding fiscal policy multipliers our results provide support for the presence of strong hysteresis effects of fiscal policy the large size of the effects points in the direction of self defeating fiscal consolidations as suggested by delong and summers 2012 attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to gdp ratio through their long term negative impact on output

financial and fiscal interaction in the euro area crisis this time was different abstract this paper highlights the anomalous characteristics of the euro area twin crises by contrasting the aggregate macroecosnomic dynamics in the period 2009 2013 with the business cycle fluctuations of the previous decades we report three novel stylised facts first the contraction in output was marked by an anomalous downfall in private investment and an increase in households savings while consumption and unemployment followed their historical relation with gdp second households and financial corporations debts and house prices deviated from their pre crisis trends while non financial corporations debt followed historical regularities third the jumps in the public deficit gdp and debt gdp ratios in 2008 2009 were unprecedented and so was the fiscal consolidation that followed our analysis points to the financial nature of the crisis as a likely explanation for these facts importantly the anomalous increase in public debt is in large part explained by extraordinary measures in support of the financial sector which show up in the stock flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors

is the 2007 u s sub prime financial crisis so different an international historical comparison the first major financial crisis of the twentyfirst century involves esoteric instruments unaware regulators and skittish investors it also follows a well trodden path laid down by centuries of financial folly is the special prob lem of sub prime mortgages really different our examination of the longer historical record which is part of a larger effort on cur rency and debt crises finds stunning qualitative and quantitative parallels across a number of standard financial crisis indicators to name a few the run up in us equity and housing prices that graciela l kaminsky and reinhart 1999 find to be the best leading indicators of crisis in countries experiencing large capital inflows closely tracks the average of the previous 18 post world war ii banking crises in industrial countries so too does the inverted v shape of real growth in the years prior to the crisis despite widespread concern about the effects on national debt of the tax cuts of the early 2000s the run up in us public debt is actually some what below the average of other crisis episodes in contrast the pattern of us current account deficits is markedly worse at this juncture the book is still open on how the current dislocations in the united states will play out the precedent found in the aftermath of other episodes suggests that the strains can be quite severe depending especially on the initial degree of trauma to the financial system and to some extent the policy response the average drop in real per capita output growth is over 2 percent and it typically takes two years to return to trend for the five most catastrophic cases which include episodes in finland japan

worldwide economic recoveries from financial crises through the decades abstract the profiles of economic recoveries after a financial crisis are identified through a self organizing map covering 104 countries during 1973 2017 first and surprisingly only 55 of the 276 events belong to the usual v u l classification new s shaped bounce back recoveries d oomed ones and double dip m occur in 23 18 and 4 of the cases respectively second the frequencies of profiles vary with the crisis type countries development and location and over time third unlike government spending supporting domestic credit liquidity foreign trade or else the exchange rate after the crisis may help activity bounce back

detecting unemployment hysteresis a simultaneous unobserved components model with markov switching abstract we construct a new markov switching unobserved components framework for analysing hysteresis effects featuring trend cycle decomposition identification of spillovers between the components and asymmetry over the business cycle the decades long upward trend in german unemployment is fully explained by hysteresis the great recession was well absorbed because both hysteresis and structural unemployment were substantially reduced after institutional reforms in contrast u s unemployment was not driven by hysteresis effects

fundamentals news global liquidity and macroprudential policy we study optimal macroprudential policy in a model in which unconventional shocks in the form of news about future fundamentals and regime changes in world interest rates interact with collateral constraints in driving the dynamics of financial crises these shocks strengthen incentives to borrow in good times i e when good news about future fundamentals coincide with a low world interest rate regime thereby increasing vulnerability to crises and enlarging the pecuniary externality due to the collateral constraints quantitatively an optimal schedule of macroprudential debt taxes can lower the frequency and magnitude of financial crises but the policy is complex because it features significant variation across interest rate regimes and news realizations

political extremism and economic activity abstract we study the effect of economic activity on the vote share of extremist political parties in europe using a model that addresses the prevalent endogeneity problem which is likely to have discouraged similar research we find that small fluctuations in income per capita have significant inverse effects on the vote share of far right parties our results explain the widespread success of such parties in entering european parliaments following the 2007 2008 crisis they also suggest that ceteris paribus far right parties on the margin of electoral thresholds run the risk of losing parliamentary representation in the face of a steadily recovering world economy

did financial frictions stifle r d investment in europe during the great recession abstract we investigate the role of financial frictions in r d spending in a large sample of european firms our identification strategy exploits the contraction in credit supply that followed the 2008 09 global financial crisis and 2012 euro area sovereign debt crisis together with differences in financial frictions across firms and industries to identify a causal effect of financial constraints on investment in innovation we show that firms that are more likely financially constrained in industries more dependent on external finance invest disproportionally less in r d during periods of tight credit supply smaller private firms with weaker balance sheets also have a lower share of r d in total investment suggesting r d drops more than total investment during these crisis episodes these results are robust to different proxies of financial constraints and fixed effects identification strategies

inquiry on the transmission of u s aggregate shocks to mexico a svar approach abstract we analyze the business cycle co movement between mexico and the us we identify two shocks affecting us aggregate supply three affecting its demand and two types of monetary policy surprises with different financial implications us shocks explain about 75 of expected output fluctuations in mexico at a three year horizon with us demand shocks driving half of these variations alone in turn mexican output responses to a monetary policy surprise in the us depend on the reaction of investors sentiment to said surprise finally for the sample period studied financial market interconnections are as important as goods demand linkages for the international transmission of us shocks

secession and the limits of taxation toward a theory of internal exit comment the purpose of this note is to correct an error in the seminal article on secession by buchanan and faith 1987 in their paper buchanan and faith neglected an important effect political separation affects markets and consequently individual private incomes

money banking and financial markets the fact that money banking and financial markets interact in important ways seems self evident the theoretical nature of this interaction however has not been fully explored to this end we integrate the diamond 1997 journal of political economy 105 928 956 model of banking and financial markets with the lagos and wright 2005 journal of political economy 113 463 484 dynamic model of monetary exchange a union that bears a framework in which fractional reserve banks emerge in equilibrium where bank assets are funded with liabilities made demandable in government money where the terms of bank deposit contracts are affected by the liquidity insurance available in financial markets where banks are subject to runs and where a central bank has a meaningful role to play both in terms of inflation policy and as a lender of last resort among other things the model provides a rationale for nominal deposit contracts combined with a central bank lender of last resort facility to promote efficient liquidity insurance and a panic free banking system

why is the euro punching below its weight on the twentieth anniversary of its inception the euro has yet to expand its role as an international currency we document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements which we argue is a portmanteau measure and as a currency for the denomination of trade and assets on all these dimensions the euro comprises a far smaller share than that of the us dollar furthermore that share has been roughly constant since 1999 by some measures the euro plays no larger a role than the deutschemark and french franc that it replaced we explore the reasons for this underperformance while the leading anchor currency may have a natural monopoly a number of additional factors have limited the euro s reach including lack of financial center limited geopolitical reach and us and chinese dominance in technology research most important in our view is the comparatively scarce supply of safe euro denominated assets which we document the european central bank lack of policy clarity may have also played a role we show that the euro era can be divided into a bundesbank plus period and a whatever it takes period the first shows a smooth transition from the european exchange rate mechanism and continued to stabilize german inflation the second period is characterised by an expanding ecb arsenal of credit facilities to european banks and sovereigns

the effects of systemic banking crises in the inter war period abstract this paper examines the time profile of the impact of systemic banking crises on gdp and industrial production using a panel of 24 countries over the inter war period and compares this to the post war experience of these countries we show that banking crises have effects that induce medium term adjustments on economies focussing on an eight year horizon it is clear that the negative effects of systemic banking crises last over the entirety of this time horizon the effect has been identified for gdp and industrial production the adverse effect on the industrial sector stands out as being substantially larger in magnitude relative to the macroeconomic effect comparing the results across long run historical periods for the same selection of countries and variables identifies some differences that stand out the short term macroeconomic impact effects are much larger in the post war period suggesting that the propagation channels of shocks operate at a faster pace in the more recent period moreover the time profile of effects differs suggesting that modern policies may be modulating the temporal shape of the response to banking crises shocks however the broad magnitude of the adverse effect of banking crises remains comparable across these time periods

gdp dynamics and unemployment changes in developed and developing countries abstractwe design a new specification of okun s model that takes the following features into account estimation of the relation in first differences the possible lagged effect of gdp dynamics on

recovery from financial crises evidence from 100 episodes we examine the evolution of real per capita gdp around 100 systemic banking crises part of the costs of these crises owes to the protracted nature of recovery on average it takes about eight years to reach the pre crisis level of income the median is about 6 years five to six years after the onset of crisis only germany and the us out of 12 systemic cases have reached their 2007 2008 peak in real income forty three percent of the 100 episodes recorded double dips post war business cycles are not the relevant comparator for the recent crises in advanced economies

macroprudential policy central banks and financial stability evidence from china abstract we study the chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability the narrative approach is used to disentangle macropudential policy actions from monetary actions we show that reserve requirements window guidance supervisory pressure and housing market policies can be used for macroprudential purposes our var estimates suggest that well targeted macroprudential policy has immediate and persistent impact on credit but no statistically significant impact on output macroprudential policy can be used to retain financial stability without triggering an economic slowdown or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing a well designed mix of these two policies helps to achieve both macroeconomic and financial stability objectives which however requires central banks to maintain a multi instrument framework

togetheror separately issues on the costs and benefits of political and fiscal unions abstract around the world one observes a tendency toward political separatism the economic literature generally but not always emphasizes several benefits of large fiscal and therefore political jurisdictions in this paper we discuss several politico economic arguments which reconcile this tension between normative economic models and empirical observations

the political economy of adjustment and rebalancing abstract debt and balance of payments crises are politically controversial in the aftermath of such crises conflict typically breaks out over how the burden of adjustment will be distributed there is international conflict between debtor nations and creditor nations over how outstanding debts will be resolved and there is conflict within nations over who will make the sacrifices necessary to get economies back on track these political conflicts often become so bitter and protracted that they impede productive bargaining over the adjustment process the characteristics of socio economic and political divisions within societies affect the battles over economic adjustment as well as who will emerge victorious from these battles and how difficult it may be to arrive at a productive resolution of the crisis

what determines output losses after banking crises abstract we examine the output costs associated with 150 banking crises using cross country data for years after 1970 many banking crises do not lead to contractions and most banking crises do not lead to large contractions a result that holds for developed and developing economies we examine which variables help to predict output changes after a banking crisis using bayesian model averaging for developed economies we find that the output losses are positively related to prior economic conditions such as credit growth for low income economies we find that other factors such as having a stock market and deposit insurance are more important