Euro-area leaders announced yet another agreement with Greece this morning. However, the survival of the euro area has never been about the fate of Greece. Instead, it is whether the Europeans will implement the reforms necessary to keep the euro area together. If they do, the common currency will endure. If they don’t, then the euro may not survive the next big adverse shock...
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Ask a well-educated person which country boasts the largest equity market and you’ll usually get the right answer: the United States. Ask which country has the second largest market and you’re likely to get a range of answers: Japan? Britain? Germany?
The answer is China. In terms of annual trading volume, China's equity market has been #2 since 2009. Measured by total market capitalization, it has been #2 for seven of the past nine years....
Why should this matter now? First, because it highlights the extraordinary spread of market-based finance in a country led for more than 65 years by its communist party.... Second, because the growth in Chinese equity markets comes with sizable risks. Recent experience drives home this point....
Read MoreInterview with Gill Marcus
Former Governor, South African Reserve Bank; former Professor, Gordon Institute of Business Science; former Deputy Minister of Finance (South Africa); and former Chair, Absa Group.
Has the experience of the crisis changed your view of the central bank policy toolkit?
Governor Marcus: Prior to the global financial crisis, central bank toolkits had become whittled down to, with a few exceptions, the policy rate. At that time there were two widely accepted propositions: first, that monetary policy would become ineffective at the zero lower bound; and second, that monetary policy should not deal with financial stability issues. The general trend was for monetary policy to focus on inflation, with bank supervision either moving out of central banks or focused on microprudential issues. Although there were debates about whether or not asset price bubbles should be dealt with by monetary policy or central banks, the general view was that central banks could not recognize bubbles, and at best they could respond to inflationary impacts of asset price developments, and clean up afterwards in the event of the bubble bursting...
Read MoreAt the third plenary session of China’s 18th Central Committee (the “Third Plenum”) in November 2013, China’s leaders adopted a broad national reform strategy (see here for a scorecard of the economic plans). Included were the liberalization of the country’s government-controlled financial system and the internationalization of its currency, the renminbi (RMB). A year ago, we argued that when it comes to freeing both its domestic and its external finances, China had a long way to go. We also suggested that the pace of liberalization would remain gradual, reflecting policymakers’ gradualist strategy to manage the risks associated with greater financial flexibility.
Well, they still have a long way to go; but the pace of regulatory change has unmistakably quickened. Authorities have been poking bigger and bigger holes in China’s Great Financial Wall. So big, in fact, that it may not be long before the wall is more symbolic than real.
Read MoreCentral bankers usually steer clear of discussions about inequality. They view monetary policy as a tool for stabilizing the economy. For many central banks, like the ECB or the Bank of England, this means price stability. For others, like the Federal Reserve, it means a combination of high employment and low inflation. Regardless of the goals, issues involving the distribution of income are generally left to the fiscal authorities.
For the most part, this division of labor is sensible. However, their mandates require central banks to make policy tradeoffs that are influenced by the prevailing income distribution. Specifically, the way in which monetary policy is conducted should depend on the access individuals have to the financial system, including both savings and credit. And we believe that it does.
Read MoreInterview with John Lipsky
Senior Fellow, Johns Hopkins School of Advanced International Studies; former Acting Managing Director, International Monetary Fund; former Vice Chairman, JPMorgan Investment Bank; former chief economist, JPMorgan Chase.
Has the experience of the crisis changed your view of the central bank policy toolkit?
Managing Director Lipsky: In many ways, the onset of the Global Financial Crisis underscored earlier views about central banks' policy roles and policy options. At the same time, recent experience highlighted both the expanded policy agenda currently facing central banks, as well as the inevitably individualized nature of the responses of any single monetary institution to a specific set of practical challenges....
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On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (hereafter, DF), the most sweeping financial regulatory reform in the United States since the 1930s. DF explicitly aims to limit systemic risk, allow for the safe resolution of the largest intermediaries, submit risky nonbanks to greater scrutiny, and reform derivatives trading.
How to celebrate its fifth birthday? Well, if you are like us, it will be a sober affair, reflecting serious worries about the continued vulnerability of the financial system.
Let’s have a look at the most noteworthy accomplishments and the biggest failings so far. Starting with the successes, here are our top five:
Read MoreIn the run-up to the 2012 U.S. Presidential election, Planet Money asked five economists from across the political spectrum for proposals that they would like to see in the platform of the candidates. The diverse group agreed, first and foremost, on the wisdom of eliminating the tax deductibility of mortgage interest.
The vast majority of economists probably agree. We certainly do. But it won’t happen, because politicians with aspirations for reelection find it toxic...
Read MoreJust three years ago, the World Bank estimated that 2½ billion adults (15 years and above) had no access to modern finance: no bank deposit, no formal credit, and no means of payment other than cash or barter. Stunningly, the Bank now estimates that even as the global population has increased, the number of “unbanked” has dropped by 20 percent. Between 2011 and 2014, 700 million adults have gained at least basic financial access via banks or mobile phone payments systems...
Read MoreIf you ask monetary economists whether we should care if a central bank’s capital level falls below zero (even for an extended period of time), most will say no. Pose the same question to central bank governors, and the answer in nearly every case will be yes.
What accounts for this stark difference? How can something that seems not to matter in theory be so important in practice?...
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