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Begin New Search Topic Financial Crisis Content Type Working Paper

1. The Egyptian Financial Crisis: Implications for the region, and for Israel too

Author:
Eran Lerman
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Jerusalem Institute for Strategy and Security (JISS)
Abstract:
Egypt continues to play an active role in regional affairs, including the Aqaba emergency meeting on the Palestinian situation (February 26) and the ongoing effort to prevent escalation in Gaza. At the same time, Cairo is in the middle of a significant financial crisis. The effects of the war in Ukraine – specifically, grain shortages – brought the Egyptian pound to more than 30 to the dollar, up from 20 in November and 15 in early 2022, facilitated by deliberate government action in response to demands by the IMF. Inflation still soars, and so does youth unemployment. All this could destabilize a nation of 105 million on our border, with dire consequences.
Topic:
Financial Crisis, Conflict, Fiscal Policy, and Financial Stability
Political Geography:
Africa, Middle East, Israel, Egypt, and MENA

2. China as an International Lender of Last Resort

Author:
Sebastian Horn, Bradley C. Parks, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. We build the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent.
Topic:
Debt, Emerging Markets, International Trade and Finance, Financial Crisis, Belt and Road Initiative (BRI), and Sovereign Debt
Political Geography:
Africa, China, and Asia

3. Global Value Chain Disruptions and Firm Survival During COVID-19: An Empirical Investigation

Author:
Sasidaran Gopalan and Ketan Reddy
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Despite the rapid acceleration of countries participating in global value chains (GVCs) over the last three decades, global GVC participation rates have plateaued since the global financial crisis (GFC) and worsened with the onset of the coronavirus disease (COVID-19) pandemic. The massive supply chain disruptions induced by the pandemic not only appeared to expose the vulnerabilities of GVCs, largely because of concentration risks, but also contributed to a dramatic decline in trade flows globally. As countries around the world emerge from the shadows of the pandemic, there is growing academic and policy interest in deciphering how countries should build effective strategies that facilitate firm survival, especially viewed from the lens of resilience and robustness. Considering this background, in this paper, we propose to make a twofold contribution to this literature. First, we undertake a comprehensive firm-level investigation (in a cross-country setting) to ascertain whether firms engaged in GVCs relative to non-GVC firms exhibited better survival instincts during the COVID-19 pandemic. Second, we uncover the heterogeneity of the shock across sectors and industries, considering the varied sectoral/industrial exposure to the COVID-19 pandemic. We document that GVC firms showcased greater robustness and resilience during the pandemic phase compared with other firms. Our results also show that the degree of resilience and robustness varies significantly by industry.
Topic:
Financial Crisis, Trade, Global Value Chains, and COVID-19
Political Geography:
Global Focus

4. COVID-19 and the Health of Banking Sector in Japan and South Korea: A Comparative Study

Author:
Munim Kumar Barai
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The economies of Japan and South Korea are dominated by banks. Both countries have created a complex financial structure, including a well-established banking industry at their heart that supports economic operations. However, both countries’ banking sectors have previously faced crises such as the Asian Financial Crisis (mostly in South Korea), the Japanese economic slowdown, and the financial crisis of 2007-08 (both). While the Bank of Japan (BOJ) approved the quantitative easing (QE) monetary policy and lowered interest rates to manage the crises, the Bank of Korea (BOK) pursued interest and financial restructuring as well as banking system digitization to overcome the crises. Covid-19 has disrupted the normal operation of banks, and the central banks and governments of both countries have implemented a variety of monetary and other measures to mitigate its economic and financial consequences. This study aims to identify and assess the health of domestic banks in Japan and South Korea for the Covid-19 ex-ante and interim periods. Several important variables, i.e., portfolios of assets and liabilities, asset productivity, stockholders' equity, profitability, and operating efficiency, have been included to evaluate the health of their banks. This compari-son of health metrics for 2010 to 2020 could help identify changes or shifts in the banking sector of Japan and Korea. The study has used ex-ploratory and descriptive methodologies to undertake qualitative and quantitative evaluations of important bank health indicators in the ex-ante and interim periods of Covid-19. It also used a hybrid method to produce research goals and arguments, including a framework based on what was already known in the field.
Topic:
Financial Crisis, Economy, COVID-19, and Banking
Political Geography:
Japan, Asia, and South Korea

5. The Cyclical Behaviour of Fiscal Policy During the Covid-19 Crisis

Author:
Philipp Heimberger
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses the cyclicality of fiscal policy (discretionary versus automatic) for 28 advanced economies over 1995-2021 by paying special attention to the Covid-19 crisis. We find evidence that discretionary fiscal policy during the Covid-19 crisis (2020-2021) was significantly more countercyclical than before – in particular in the Eurozone. We do not find comparable evidence for more counter-cyclicality during the financial crisis or Euro crisis, which lends support to the argument that discretionary fiscal policy responded especially forceful to stabilise the economy during the Covid-19 crisis. Furthermore, automatic fiscal stabilisers contributed significantly to counter-cyclical stabilisation, although their performance over 2020-2021 was more in line with the past than for discretionary fiscal policy. Overall, fiscal policy in non-Eurozone advanced countries is more countercyclical than in the Eurozone. However, the cyclicality varies markedly across countries. Our findings shed light on how the cyclical behaviour of fiscal policy varies across countries and time.
Topic:
Financial Crisis, European Union, Fiscal Policy, and COVID-19
Political Geography:
Europe

6. The European Banks’ Role in the Financial Crisis of 2007-8: A Critical Assessment

Author:
Photis Lysandrou
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was credit arbitrage or safe asset demand. New research on the European banks' role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis, European banks were deeply implicated in its causal origins as evidenced by their activities in the two US debt markets that were at the heart of the crisis: those for collateralised debt obligations (CDOs) and for asset backed commercial paper (ABCP). These activities would seem to lend weight to the credit arbitrage story, a conclusion that has been reached by several authors. However, it is a conclusion only made possible by ignoring the connection between the federal funds rate and the rate of ABCP demand from the institutional money market mutual funds (MMMFs) in the pre-crisis era. This paper argues that when this connection is closely examined, it turns out that the evidence surrounding the European banks' role in the financial crisis gives greater weight to the safe asset demand explanation of the crisis.
Topic:
Markets, Financial Crisis, Banks, Debt Securities, Assets, and Federal Funds Rate
Political Geography:
Europe and United States of America

7. The IMF should enhance the role of SDRs to strengthen the international monetary system

Author:
Edwin M. Truman
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
Topic:
International Trade and Finance, Financial Crisis, Finance, and IMF
Political Geography:
Global Focus

8. Reigniting labour productivity growth in developing countries: Do structural reforms matter?

Author:
Kwamivi Gomado
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
While the negative effects of the 2008 global financial crisis on labour productivity are still fresh in people’s minds, the COVID-19 pandemic raises concerns that productivity will continue to decline. To boost labour productivity and regain economic performance, there is an empirical consensus on the role of structural reforms that allows an efficient reallocation of resources such as labour by reducing rigidities in markets. This study analyses the role of certain structural reforms in improving labour productivity in 35 developing countries over the period of 1990–2014. From the local projection method, our results show that structural reforms have a positive impact on productivity growth in the short and medium terms. The results also illustrate that reforms induce an efficient reallocation of resources within but not between sectors. Taking the business cycle into account in estimates shows that structural reforms stimulate labour productivity growth better in periods of low economic growth.
Topic:
Labor Issues, Financial Crisis, Reform, Business, Economic Growth, and Productivity
Political Geography:
Global Focus

9. The Cyclical Behaviour of Fiscal Policy During the Covid-19 Crisis

Author:
Philipp Heimberger
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses the cyclicality of fiscal policy (discretionary versus automatic) for 28 advanced economies over 1995-2021 by paying special attention to the Covid-19 crisis. We find evidence that discretionary fiscal policy during the Covid-19 crisis (2020-2021) was significantly more countercyclical than before – in particular in the Eurozone. We do not find comparable evidence for more counter-cyclicality during the financial crisis or Euro crisis, which lends support to the argument that discretionary fiscal policy responded especially forceful to stabilise the economy during the Covid-19 crisis. Furthermore, automatic fiscal stabilisers contributed significantly to counter-cyclical stabilisation, although their performance over 2020-2021 was more in line with the past than for discretionary fiscal policy. Overall, fiscal policy in non-Eurozone advanced countries is more countercyclical than in the Eurozone. However, the cyclicality varies markedly across countries. Our findings shed light on how the cyclical behaviour of fiscal policy varies across countries and time.
Topic:
Financial Crisis, Crisis Management, Fiscal Policy, COVID-19, and Euro
Political Geography:
Europe

10. Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy

Author:
Jakob Vestergaard and Daniela Gabor
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Despite much attention to unconventional monetary policies after the financial crisis, the collateral policies of central banks are rarely discussed. And when they are, the haircuts applied to assets pledged to access central bank liquidity tend not to be analyzed. An exception to these trends is the recent work by Nyborg (2017), who argues that the collateral policies adopted by the European Central Bank (ECB) aggravated the sovereign debt crisis and put the survival of the euro at risk. Taking our point of departure in the money view literature (Mehrling 2011), we argue however that Nyborg’s critique of the ECB’s crisis response is misguided and that his proposal to deepen and reinforce the ECBs role in the fiscal disciplining of member states would be procyclical and destabilizing. Through our analysis of Nyborg’s work and the ECBs crisis response, we identify core principles for countercyclical collateral policies suitable for market-based financial systems.
Topic:
Monetary Policy, Financial Crisis, Finance, and Banking
Political Geography:
Global Focus