Following the crisis, sharp losses in the values of houses and financial assets, as well as difficulties in obtaining new credit, forced American families to save more and rebuild their wealth. The ensuing rise in the saving rate, which stood at 4 percent in the second quarter of 2012, has been an important reason why the recovery from the 2008–09 recession has been sluggish. Therefore, our study looked at which types of households drove the aggregate saving rate down before the crisis and those that drove it up afterwards, so as to improve our ability to assess the potential for future U.S. growth.
In response to the global crisis, policymakers around the world are instituting the broadest reform of financial regulation since the Great Depression. Some in the financial industry claim the long run economic costs of these global reforms outweigh the benefits. But our new research strongly suggests the opposite—the reforms are well worth the money.
With all eyes on the euro area, it is easy to forget that only a few years ago the emerging economies of Europe, from the Baltic to the Black Sea, went through a deep economic and financial crisis. This crisis is the topic of a new book that we will introduce to the public this week in Bucharest, London, and Vienna.
One lesson is that your best chance to prevent deep crises is forcefully addressing booms before they get out of hand. Another is that even crises that look abysmal can be contained and overcome— policies to adjust the economy and international financial support do work.
In the half decade leading up to the crisis, easy global financial conditions, confidence in a rapid catch-up with western living standards, and initially underdeveloped financial sectors spawned a tremendous domestic demand boom in the region. Western banking groups bankrolled the bonanza, providing their eastern subsidiaries with the funds to extend the loans that fueled the domestic boom. (more…)
When should multilateral considerations trump national interests in the imposition of controls on capital flows? An IMF paper explores the reasons why countries may want to impose controls and looks at when the wider interest should be taken into consideration, requiring some multilateral principles for their safe management.