Policy Responses to the Collapse of the Financial Sector: Introduction

2010 ◽  
Vol 211 ◽  
pp. R1-R2 ◽  
Author(s):  
Ray Barrell
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Trade Credit ◽  
Investment Decision ◽  
Credit Rationing ◽  
Policy Responses ◽  
Investment Decision Making ◽  
The Us ◽  
The Uk

The downturn in global economic activity that started in 2008 was turned into a major recession after the failure of Lehman Brothers in September 2008. It appears that world output fell by more than 1 per cent in 2009, and OECD output probably fell by around 3½ per cent. The effects on output were more marked in the Euro Area and the UK than they were in the US or Canada, which partly reflects the policy responses chosen by Treasuries and Central Banks. The financial crisis that drove the recession affected banks in the US, the UK, the Euro Area and the rest of Europe rather more than it did those in Canada, Australia and Japan. However, recessions have been common, with only Australia and Poland appearing to avoid them. The financial crisis led rapidly to a freezing of trade credit, which caused world trade to decline very sharply at the beginning of 2009. The financial crisis also led to an increase in risk premia in investment decision-making and hence to a decline in the equilibrium capital output ratio, which caused a sharp reduction in the demand for capital goods. Combined with credit rationing effects for firms needing access to borrowing, this induced a collapse in investment. Trade channels made the crisis global, as did movements in exchange rates. Interest rates were cut sharply in the US, Europe and Japan, and approached levels seen in Japan for the previous decade. As a result the yen appreciated strongly, and the combination of the effects of this appreciation on competitiveness and the decline in investment goods trade meant that Japan suffered worse than most other countries, at least in the short term.

Evaluating Policy Reactions to the Financial Crisis

2009 ◽  
Vol 207 ◽  
pp. 39-42 ◽  
Author(s):  
Ray Barrell ◽  
Tatiana Fic ◽  
Dawn Holland
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Banking Crisis ◽  
The Past ◽  
The Us ◽  
Lehman Brothers ◽  
European Banks ◽  
Current Financial Crisis ◽  
The Uk

The current financial crisis has evolved slowly over the past eighteen months, and policy reactions have responded to events. In August 2007 it became clear that a number of banks had lost some of their capital base as a result of defaults on home loans in the US. The impacts of these defaults had been spread across the Atlantic as they were contained within bundles of assets that had been constructed into securities and sold to European banks. By the autumn of 2007 it was clear that there was a strong risk of a banking crisis, as discussed by Barrell and Holland (2007) in the October 2007 Review. We considered that this was a risk, but that the costs were so obviously large that policymakers would strive to avoid it, and hence it was not our main scenario. We were wrong on both counts, and a crisis at least as large as that we discussed emerged after the US authorities let Lehman Brothers fail in September 2008. We argued that a crisis would lead to a reduction in growth of a cumulated 3 per cent in the US and a cumulated loss of about 2 ½ per cent in the UK and the Euro Area. If a crisis burst, we expected US interest rates to reach zero in 2009 with deflation toward the end of the year.

scholarly journals To What Extent did Monetary Policy Contribute Towards the Recent Financial Crisis and Subsequent Recession in the US and UK?

2019 ◽  
Vol 3 (2) ◽  
pp. 9
Author(s):  
Tao Hu ◽  
Ceri Davies
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Taylor Rule ◽  
Economic Fundamentals ◽  
Nominal Interest Rates ◽  
The Us ◽  
Recent Financial Crisis ◽  
The Uk ◽  
The Relationship

This essay researches the question, “To what extent did monetary policy contribute towards the recent financial crisis and subsequent recession in the US and UK?” This article begins by demonstrating monetary policy’s role in guiding the economy’s development under different economic fundamentals. Then the essay puts forward the existence of possibility that monetary policy may cause potential dangers for the economy. In the next chapter, the essay illustrates the guideline for monetary policy namely Taylor rule and economists’ arguments and explanations for the US monetary policy in the past decade. In chapter 3, this article estimates the nominal interest rates for both the US and the UK based on Taylor rule for different periods and illustrates influences of monetary policy actually taken for each country in different periods. In chapter 4, the article tests the relationship between monetary policy’s deviations from Taylor rule and financial imbalances by using the OLS method and explains results. Finally, in chapter 5, the article concludes that in some degree monetary policy’s deviations from Taylor rule prescriptions contribute to a build-up of financial imbalances.

Strategies for Business Firms in Declining Markets

2009 ◽  
Vol 5 (2) ◽  
pp. 173-181
Author(s):  
Sarira Aurangabadkar
Keyword(s):  
Interest Rates ◽  
Developed Countries ◽  
Fiscal Year ◽  
Government Growth ◽  
Global Recession ◽  
Reserve Bank ◽  
The Us ◽  
Manufacturing Activity ◽  
The Government ◽  
The Uk

The economic crisis that has engulfed the world since 2007 has become serious by the first quarter of 2009.Many developed countries too are affected severely, namely the US, Germany, the UK and others. Fortunately, India as of now seems to be less affected, yet the winds of global recession are now felt. The Indian economy grew at an annual rate of 7.6% in the quarter ending in September, 2008. As per the projections of the government growth in the fiscal year, 2008-09 could be in the range of 7 to 8 %, which is, lower than 9% in the last year. The government has unveiled a multibillion dollar stimulus on 7th December, 2008 and 2nd January, 2009 respectively. The Reserve Bank of India has cut interest rates aggressively. India Inc has felt the heat of the global meltdown in the third quarter ending in December, 2008 where the income has dropped by a massive 23% points compared to the previous year. Indian manufacturing activity has contracted for the second consecutive month in December, 2008 to its lowest in more than three and half years. India’s exports too have declined by 12.1 % in October, 2008 showing a negative trend for the first time in the last five years.

Market volatility endangers moves to replace LIBOR

2020 ◽  
Keyword(s):  
United States ◽  
Interest Rates ◽  
Banking Sector ◽  
Market Volatility ◽  
Content Type ◽  
Consumer Loans ◽  
The United Kingdom ◽  
Interest Rate Swaps ◽  
The Us ◽  
The Uk

Subject The transition away from LIBOR. Significance The London Interbank Offered Rate (LIBOR) has been relied upon worldwide since 1970 for setting interest rates on syndicated loans, corporate debt, consumer loans, interest rate swaps and other derivatives. Following the 'LIBOR scandal' of 2008, the UK Financial Conduct Authority took over the regulation and administration of the rate, and no manipulation has emerged since 2013. Nevertheless, the United Kingdom and United States are determined to replace LIBOR. Impacts COVID-19 could prompt the US Fed to increase its support to the repo market, exacerbating fears that SOFR is not market determined. The scale and duration of COVID-19-related economic disruptions loom over banking sector profitability. Banks will struggle to balance immediate priorities triggered by COVID-19, and the need to devote staff and funds to the LIBOR transition.

An Analysis of EU Growth Trends, with a Particular Focus on Germany, France, Italy and the UK

2007 ◽  
Vol 199 ◽  
pp. 82-98 ◽  
Author(s):  
Kieran McMorrow ◽  
Werner Roger
Keyword(s):  
Growth Rate ◽  
Euro Area ◽  
Potential Growth ◽  
Individual Country ◽  
Reform Agenda ◽  
Current Trends ◽  
Time Period ◽  
The Us ◽  
Good Individual ◽  
The Uk

Since the mid-1990s the growth performance of the Euro Area as a whole, despite some good individual country performances, has failed to keep pace with developments elsewhere in the EU (including the UK) and also in the US. This is especially the case for a number of the larger Euro Area economies. Despite an encouraging performance in terms of its labour input trends, there has been a significant, offsetting, deterioration in the Euro Area's underlying productivity performance. This is driven in large part, worryingly, by a marked downward shift in the growth rate of total factor productivity. Looking to the future, no significant recovery is predicted in the Euro Area's underlying economic performance over the period 2007–11. While the policy challenge is a serious one, the Euro Area as a whole can take comfort from the fact that the gains from a successful refocusing of its overall reform agenda could be considerable. For example, the progressive introduction of the five key measures linked to the Lisbon strategy (i.e. the services directive; reduction of the administrative burden; improving human capital; 3 per cent R&D target; and increases in the employment rate) could boost the Euro Area's economic and employment growth rates by more than ½ a percentage point annually for more than a decade. Such an outturn would give the Euro Area a potential growth rate of around 2½ per cent, a rate of growth which in per capita terms would be broadly comparable to that of the US over the 2007–15 time period and, on the basis of current trends and policies, slightly better than that of the UK.

At A Glance…: The world economy

2006 ◽  
Vol 196 ◽  
pp. 2-3
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Global Economy ◽  
World Economy ◽  
Us Economy ◽  
The Us ◽  
The World ◽  
Global Growth

• Global growth will remain rapid over the next two years, with world GDP rising by 4.8 per cent in 2006 and 4.5 per cent in 2007.• China's growing weight in the global economy is a key reason why interest rates have been unusually low.• The US economy will grow by 3.3 per cent this year and 2.9 per cent in 2007.• Japan will expand by 2.9 per cent in 2006 and 2.3 per cent next year.• The Euro Area will grow by 2.1 per cent this year and 2.0 per cent in 2007.

scholarly journals Reshaping the Future

2020 ◽  
Author(s):  
Hung-Yi Chen
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Credit Card ◽  
Satellite Images ◽  
Investment Decision ◽  
Meaningful Use ◽  
Internet Traffic ◽  
Economic Recovery ◽  
Investment Decision Making ◽  
The Future

Alternative data has steadily become more mainstream in investment decision-making. These non-traditional datasets provide a channel to draw insights from information as diverse as satellite images, news, tweets, mobile and internet traffic and credit card purchases. While alternative data has become an industry buzzword, making meaningful use of it remains a challenge. The ongoing financial crisis caused by the COVID-19 pandemic poses unprecedented challenges. This chapter explores examples of how alternative data can be used to help economic recovery.

scholarly journals Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies

2019 ◽  
Vol 8 (3) ◽  
pp. 39-50
Author(s):  
Wilson Donzwa ◽  
Rangan Gupta ◽  
Mark E. Wohar
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Variance Test ◽  
Full Sample ◽  
Developed Economies ◽  
Volatility Spillovers ◽  
Daily Data ◽  
The Us ◽  
Before And After ◽  
The Uk

Abstract This study employs the recently developed Lagrange multiplier-based causality-in-variance test by Hafner and Herwartz (2006), to determine the volatility spillovers between interest rates and stock returns for the US, the euro area, the UK, and Japan. The investigation pays careful attention to volatility transmissions between stock returns and interest rates before and after these economies reached the Zero Lower Bound (ZLB), which is permitted via the use of Shadow Short Rates (SSR), used as a proxy for monetary policy decisions. The results based on daily data imply that while bidirectional causality is observed, the volatility spillover from interest rates to stock markets are more prominent for the full-sample, as well as the sub-samples covering the pre- and during-ZLB periods.

scholarly journals The influence of interbank money market stress levels on credit markets during the postcrisis period in the US and the Euro area

2011 ◽  
Vol 56 (189) ◽  
pp. 7-26
Author(s):  
Djordje Djukic ◽  
Malisa Djukic
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Global Financial Crisis ◽  
Money Market ◽  
Stress Indicators ◽  
Money Markets ◽  
The Us ◽  
High Yields ◽  
The Global Financial Crisis

Despite the anti-crisis measures in the US and the euro area that were the policy response to the global financial crisis in 2007 and 2008, the stress on the interbank money market was still present in 2009 and 2010. The increasing inflationary pressures will require an increase in the ECB key interest rate in the second half of 2011. The over indebted euro area countries will have to raise funds by issuing and selling bonds with high yields. Taking into account such an environment, in this paper we analyze the relevant interbank money market stress indicators during 2010 and the beginning of 2011, in order to estimate the effects of money markets interest rate movements on credit market interest rates, primarily in the euro area, during the post-crisis period.

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