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22. Explaining Turkey’s Current Economic Crisis
- Author:
- Erinc Yeldan
- Publication Date:
- 02-2020
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- Turkey entered a new phase of recession-cum-real economy crisis starting in the last quarter of 2018. In contrast to the previous crisis episodes of 1994, 2001 or 2009, when the economy had abruptly shrunk with a spectacular collapse of asset values and a severe contraction of output, the 2018- crisis is characterized by a prolonged recession with persistent low (negative) rates of growth, dwindling investment performance, debt repayment problems, secularly rising open unemployment, a spiraling currency depreciation and high inflation. Popular explanations from the mainstream tradition attribute this dismal performance to a lack of “structural reforms” and/or exogenous factors. Per contra, our analysis shows that the underlying sources of the crisis are to be found not in the conjunctural cycles of reform fatigue, but rather in the post-2001 neoliberal speculative-led growth model with excessive reliance on hot money flows and foreign debt accumulation. We argue that following the post-2001 orthodox reforms, a foreign-capital-inflow-dependent, debt-led, and construction-centered economic growth model dominated the economy and caused a long buildup of imbalances and increased fragilities.
- Topic:
- Emerging Markets, Financial Crisis, Financialisation, and Economic Crisis
- Political Geography:
- Turkey and Middle East
23. This Time Was Different: The Global Safe Asset Shortage and Shadow Banking in Socio-Historical Perspective
- Author:
- Photis Lysandrou and Anastasia Nesvetailova
- Publication Date:
- 01-2020
- Content Type:
- Working Paper
- Institution:
- City Political Economy Research Centre (CITYPERC), University of London
- Abstract:
- Safe assets and shadow banking are two closely linked phenomena in contemporary finance. The link is loan securitisation: at a time of a global safe asset shortage, it falls on the shadow banking system to help make good that shortage by manufacturing extra quantities of asset backed securities. When these quantities cannot keep up with volume of safe asset demand, the shadow banking system comes under pressure to manufacture the type of complex structured securities that can potentially cause a financial crisis. That potentiality became reality with the great financial crisis of 2007-8. If a further financial crisis of this scale is to be averted, the regulation of the shadow banking system should be informed by an understanding of the contemporary socioeconomic circumstances that continue to cause a global safe asset shortage. This paper attempts to contribute to such an understanding.
- Topic:
- Financial Crisis, Banking, Securitization, and Safe Asset
- Political Geography:
- Global Focus
24. Causal Mechanism and Explanation in Social Science
- Author:
- Renate Mayntz
- Publication Date:
- 04-2020
- Content Type:
- Working Paper
- Institution:
- Max Planck Institute for the Study of Societies
- Abstract:
- In the social sciences, the development of a specific social event or structure is often ex- plained by a statistical correlation between an independent variable and a variable assumed to be dependent upon it. This mode of explanation is contested by a methodology of causal reconstruction that operates with the concept of mechanisms. A mechanism is a process in which a set of linked steps leads from initial conditions to an outcome or effect. Mechanisms are general concepts, subjecting individual cases to a general category. Except for the litera- ture dealing specifically with the concept, the term “mechanism” is often used without defi- nition of its substantive content; there is no agreement with respect to the unique or plural character of the initial conditions, nor to the structure of the causal path leading to a specific outcome. Nevertheless, mechanisms have played a crucial role in detailed causal analysis of complex historical events, such as the financial crisis of 2008 and German unification of 1989.
- Topic:
- Cold War, Nationalism, Financial Crisis, and Unification
- Political Geography:
- Europe, Germany, West Germany, Central Europe, and East Germany
25. Sovereign debt restructuring: The centrality of the IMF's role
- Author:
- Sean Hagan
- Publication Date:
- 07-2020
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Over the past 40 years, the International Monetary Fund (IMF) has played a central role in the sovereign debt restructuring process. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. The paper analyzes how IMF policies have evolved to shape the incentives of sovereigns and their creditors at each stage of the sovereign debt restructuring process. It also identifies a number of issues that the IMF will likely have to address as a result of the pandemic, including (1) assessment of debt sustainability in a macroeconomic environment of considerable uncertainty, (2) treatment of official bilateral creditors, and (3) potential benefits—and challenges—of introducing additional incentives to maximize creditor participation in any debt restructuring.
- Topic:
- Debt, Emerging Markets, Government, International Monetary Fund, Financial Crisis, Macroeconomics, and COVID-19
- Political Geography:
- Global Focus
26. Coping with Disasters: Two Centuries of International Official Lending
- Author:
- Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch
- Publication Date:
- 06-2020
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
- Topic:
- Debt, International Political Economy, War, History, Financial Crisis, Trade, and Banking
- Political Geography:
- Global Focus
27. Global Financial Imbalance: Firm-level Evidence from Korea
- Author:
- Tae Soo Kang, Kyunghun Kim, and Yuri Kim
- Publication Date:
- 05-2020
- Content Type:
- Working Paper
- Institution:
- Korea Institute for International Economic Policy (KIEP)
- Abstract:
- Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.
- Topic:
- Financial Crisis, Business, and Business Management
- Political Geography:
- Asia and South Korea
28. International Financial Regulation: Why It Still Falls Short
- Author:
- William White
- Publication Date:
- 07-2020
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- While recent reforms are welcome in many ways, there are still significant reasons to doubt that the post-crisis tightening of international financial regulation guarantees future financial and economic stability. The most important reason is that the reforms have focused too narrowly on ensuring that an unstable financial sector will not aggravate downturns by restricting the supply of credit. More attention needs to be paid to ensuring that an overly exuberant financial system does not weaken other parts of the economy by encouraging a rapid buildup of debt during upturns. Some combination of time-varying monetary and regulatory policies (a macrofinancial stability framework) will be required to do this. In addition, many of the individual regulatory measures taken to date, both macroprudential and microprudential, have shortcomings. Their coherence as a package has also been questioned.
- Topic:
- Political Economy, Financial Crisis, Reform, Banks, and Subsidies
- Political Geography:
- Global Focus
29. Causal Mechanism and Explanation in Social Science
- Author:
- Renate Mayntz
- Publication Date:
- 04-2020
- Content Type:
- Working Paper
- Institution:
- Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
- Abstract:
- In the social sciences, the development of a specific social event or structure is often explained by a statistical correlation between an independent variable and a variable assumed to be dependent upon it. This mode of explanation is contested by a methodology of causal reconstruction that operates with the concept of mechanisms. A mechanism is a process in which a set of linked steps leads from initial conditions to an outcome or effect. Mechanisms are general concepts, subjecting individual cases to a general category. Except for the literature dealing specifically with the concept, the term “mechanism” is often used without definition of its substantive content; there is no agreement with respect to the unique or plural character of the initial conditions, nor to the structure of the causal path leading to a specific outcome. Nevertheless, mechanisms have played a crucial role in detailed causal analysis of complex historical events, such as the financial crisis of 2008 and German unification of 1989.
- Topic:
- Financial Crisis, Reconstruction, Unification, Social Science, and Mechanism
- Political Geography:
- Europe, Germany, and United States of America
30. Venezuela: First episode of the new Cold War?
- Author:
- Slobodan Pajovic
- Publication Date:
- 07-2019
- Content Type:
- Working Paper
- Institution:
- Institute for Development and International Relations (IRMO)
- Abstract:
- Since the beginning of 2019, Venezuela has been in the focus of international politics because of its political and institutional crisis, together with its economic and social collapse generated in 2013, transformed into a regional and international crisis. The exit of some estimated three to four million emigrants mostly to neighboring countries of human rights and democratic values, the authoritarian regime of socialist orientation, the current American strategy of strengthening its political and strategic influence in Latin America, the presence of significant non- regional emerging global factors, as well as the cyclical changes of political parties in power in this part of the world. Accordingly, this crisis tests the hemispheric and global leadership of has additionally deepened the contexts of theUS, the influences of emerging global powers the regional crisis including also the security aspect. In short, the crisis can be described as oscillating between the issues of defense like China, Russia, India or Turkey, recently, and the potential of Latin American regionalism and political consensus.
- Topic:
- Imperialism, Migration, Regional Cooperation, and Financial Crisis
- Political Geography:
- United States, Latin America, Venezuela, and North America
31. The Cost of Holding Foreign Exchange Reserves
- Author:
- Eduardo Levy Yeyati and Eduardo Gómez
- Publication Date:
- 05-2019
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effects empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
- Topic:
- Financial Crisis, Exchange Rate Policy, International Reserves, and Capital Flows
- Political Geography:
- Global Focus and United States of America
32. Evolve or Perish: The Global Forces Changing the Business of Banks
- Author:
- Robert Fay and Angelo Arcelli
- Publication Date:
- 04-2019
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Following the 2008 financial crisis, the Group of Twenty embarked on an ambitious financial regulatory reform plan that has seen many banks worldwide make substantial progress in terms of both capitalization and governance. Over this period, banks have also become increasingly exposed to business risks from digitization, artificial intelligence and cybercrime, and major investments are necessary to manage these risks. New regulations have been introduced in the European Union to reduce these risks, but their associated costs have potentially created a lasting competitive disadvantage for European banks. This situation has raised some key questions that deserve to be discussed and investigated: How does regulation — including that outside the sector — affect banks’ ability to compete globally? What will be the impact of fintech players as well as globally active banks from China and other emerging markets? Can the Basel regulatory framework and Financial Stability Board (FSB) ensure a level playing field globally going forward, or has the regulatory pendulum swung too far? How will the supervisory approach need to be adapted to the changing structure of the global financial system? Moreover, how will the implementation of Basel reforms affect the industry? These and other questions remain about the effectiveness of the already-achieved reforms as well as their future direction. These issues were at the core of CIGI and Oliver Wyman’s fifth annual Financial Regulatory Outlook Conference, held in Rome on November 28, 2018. This conference report summarizes the key points of discussions at the conference, with a special focus on the 10 years of regulatory reform that was conducted under the auspices of the FSB and the new forces that are currently affecting banks and could have an impact on the future.
- Topic:
- Financial Crisis, Regulation, Europe Union, and Digital Culture
- Political Geography:
- Europe and Global Focus
33. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences
- Author:
- Edwin M. Truman
- Publication Date:
- 07-2019
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper evaluates international efforts to diagnose the global financial crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International coordination of economic policies eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to future crises.
- Topic:
- Government, International Cooperation, Financial Crisis, and Economy
- Political Geography:
- Global Focus
34. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences
- Author:
- Edwin M. Truman
- Publication Date:
- 07-2019
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper evaluates international efforts to diagnose the global financial crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International coordination of economic policies eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to future crises.
- Topic:
- International Affairs, Financial Crisis, Economic Policy, and Fiscal Policy
- Political Geography:
- Global Focus
35. Responding to Economic and Ecological Deficits
- Author:
- Jonathan M. Harris
- Publication Date:
- 04-2019
- Content Type:
- Working Paper
- Institution:
- Global Development and Environment Institute at Tufts University
- Abstract:
- Macroeconomic theory was shaken up in the wake of the financial crisis, with neoclassical approaches proving inadequate to analyze or respond to the need for policy action. Despite efforts to return to more conventional macro perspectives, a continuing re-evaluation of economic theory has important implications both for traditional economic concerns such as employment and inflation, and for ecological issues and the climate crisis. An emerging “green Keynesian” approach combines a radical Keynesian analysis with ecological priorities such as drastic carbon emissions reduction. One important aspect of this reorientation of theory is the analysis of economic and ecological deficits. In the years since the financial crisis, both economic and ecological deficits have increased. This poses a challenge for “green Keynesian” policy. It is therefore necessary to have effective analyses to measure and respond to ecological deficits, as well as policy measures to deal with economic deficits. This paper proposes a new approach to measuring ecological deficits, and a new perspective on economic deficits and debt. Since there is no single unitary measure for depletion or degradation of different kinds of resources, it is necessary to measure different kinds of deficit for different resources, with a goal of reducing all of these to zero or replacing them with surpluses. The analysis involves exploring the specific economic implications of reducing both ecological and economic deficits, which involves re-conceptualizing economic growth and "degrowth", and provides an alternative to current U.S. policies under the Trump administration, which are contributing to widening both deficits.
- Topic:
- Climate Change, Debt, Financial Crisis, and Macroeconomics
- Political Geography:
- Global Focus
36. Beyond International Standards: Mapping the Future of Capital Markets Regulation
- Author:
- Cally Jordan
- Publication Date:
- 09-2018
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- As a response to multiple financial shocks, international standards have disappointed. Consensus seeking has stifled innovation, perpetuating outdated regulatory concepts at a time of rapid market change. Markets are complex and idiosyncratic; they may not be receptive to efforts toward producing regulatory harmonization and convergence. Alternatives to international standard setting should be explored. Possibilities include fora for experimentation in capital markets regulation, the creation of a set of variegated model capital markets laws and a “restatement”-like treatise.
- Topic:
- Markets, Financial Crisis, Regulation, and Capitalism
- Political Geography:
- Global Focus
37. Addressing Excessive Risk Taking in the Financial Sector: A Corporate Governance Approach
- Author:
- Steven L. Schwarcz and Maziar Peihani
- Publication Date:
- 09-2018
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Excessive corporate risk taking by systemically important financial institutions (SIFIs) is widely seen as one of the primary causes of the global financial crisis. In response, an array of international reforms, under the auspices of the Group of Twenty’s (G20’s) standard-setting bodies, has been adopted to try to curb that risk taking. However, these reforms only impose substantive requirements, such as capital adequacy, and cannot by themselves prevent future systemic collapses. To complete the G20 financial reform agenda, SIFI managers should have a duty to society (a public governance duty) not to engage their firms in excessive risk taking that leads to systemic externalities. Regulating governance in this way can help supplement the ongoing regulatory reforms and reduce the likelihood of systemic harm to the public.
- Topic:
- Financial Crisis, Reform, Regulation, Risk, and Financial Institutions
- Political Geography:
- Global Focus
38. Measuring Venezuela Emigration with Twitter
- Author:
- Ricardo Hausmann, Julian Hinz, and Muhammad A. Yildirim
- Publication Date:
- 05-2018
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- Venezuela has seen an unprecedented exodus of people in recent months. In response to a dramatic economic downturn in which inflation is soaring, oil production tanking, and a humanitarian catastrophe unfolding, many Venezuelans are seeking refuge in neighboring countries. However, the lack of official numbers on emigration from the Venezuelan government, and receiving countries largely refusing to acknowledge a refugee status for affected people, it has been difficult to quantify the magnitude of this crisis. In this note we document how we use data from the social media service Twitter to measure the emigration of people from Venezuela. Using a simple statistical model that allows us to correct for a sampling bias in the data, we estimate that up to 2.9 million Venezuelans have left the country in the past year.
- Topic:
- Migration, Financial Crisis, Refugees, Internet, and Social Media
- Political Geography:
- South America and Venezuela
39. Euro-area Governance Reform: The Unfinished Agenda
- Author:
- Miranda Xafa
- Publication Date:
- 11-2018
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Since the debt crisis of 2010-2012, sustained efforts toward deeper integration, supported by accommodative monetary policy, helped promote the recovery of the euro-area economy and dispelled fears of a breakup of the single currency. Fiscal rules were tightened and macro surveillance tools were set up for crisis prevention. Yet significant challenges remain to be tackled. Gaps remain in the euro-area architecture; limited progress has been made in establishing the Capital Markets Union and the banking union remains incomplete. Today’s environment of solid growth remains an ideal time to advance the reform agenda. There is wide agreement that building a well-functioning and resilient monetary union in Europe requires further steps to break the bank-sovereign doom loop and to increase risk sharing among members of the union. Many competing proposals have been tabled to make the governance of the euro area more robust. Views differ on the shape and sequencing of reforms, and on the degree of integration that is ultimately desirable, with some observers arguing for a full fiscal union with shared risk, and others going all the way to full political union through the creation of a federal state. This paper assesses and prioritizes key proposals that are economically sound and politically feasible.
- Topic:
- Debt, Regional Cooperation, Financial Crisis, and European Union
- Political Geography:
- Europe
40. The Greek Crisis and Its Repercussions on the Balkan Neighbourhood: The End of the Myth
- Author:
- Marilena Koppa
- Publication Date:
- 10-2018
- Content Type:
- Working Paper
- Institution:
- International Relations Council of Turkey (UİK-IRCT)
- Abstract:
- This article explores the role of Greece in the Balkans since the end of Communism and the impact of the sovereign debt crisis that followed. Since the beginning of the 1990s, while Greece failed to accomplish its vocation at the political level, at the level of the economy the country acted as an important regional actor. The article examines the dynamics of the Greek crisis on the Balkan economies and analyses the major challenges for Greece in this new reality. At the same times, it tries to identify the triple crisis faced currently by Greece: at the level of credibility and status, at the level of mediation between the region and the EU and, finally, at the level of the gradual peripherisation of the country.
- Topic:
- International Political Economy and Financial Crisis
- Political Geography:
- Greece