Great Financial Crisis Research Articles

Az emigráns magyarok életkörülményei és -stratégiái a legfontosabb európai migrációs célországokban

A magyarok emigrációja – 1989 óta nem tapasztalt dinamikus növekedésének, univerzális életstratégiává válásának köszönhetően – napjainkban a multi- és interdiszciplináris társadalomtudományi kutatások homlokterébe került. A Legújabb trendek a magyarországi kivándorlásban című kutatás – amelyet 2013 és 2017 között folytattunk – empirikus eredményei több szemszögből vizsgálják a magyar társadalmat és gazdaságot sújtó kivándorlás jellegzetességeit. A kutatás egyrészt a magyarok migrációs hajlandóságára, a kiköltözéssel kapcsolatos attitűdökre fókuszál, másrészt a már kivándorolt magyar állampolgárok külföldi élettapasztalatait, a kiköltözésre ösztönzés okait, a külföldi lét előnyeit és hátrányait részletezi. A tanulmány bemutatja a kivándorlás hullámzó trendjeit, a célországok integrációs jellegzetességeit, a külföldi életvitel eltérő stratégiáit, az emigráns magyarok szubjektív jóllétének különbözőségeit, végül a migrációra és a visszatérésre (remigráció) ösztönző tényezőket.

How financial intermediation impacts on financial stability?

ABSTRACTThe great financial crisis widened the role of financial intermediation in financial stability. This study develops a new financial intermediation variable, credit cash flow (CCF), which enables measurement of the net financial flow resulting from loan activity. An analysis provides evidence that CCF affects the capital buffer via credit gap behaviour, thus indicating the existence of a channel between the CCF and the capital buffer. Such a link offers the policy-maker the possibility to monitor the behaviour of financial intermediation carried out by banks, in order to avoid the outbreak of financial instability events.

Monetary Policy Transmission and the Impact on Financial Markets, Inflation and the Real Economy

The relationship between macroeconomic variables and asset prices varies over time. Recent research points to monetary policy as an important driver of this dynamic relationship. On the one hand, most central banks pursue a mandate that takes into account expected inflation and some measure of the expected output gap. On the other hand, realized inflation and output gap are influenced by monetary policy. The main part of this paper provides an overview of the most important transmission channels of conventional and unconventional monetary policy (and their potential impact on asset prices). The current environment of low to zero interest rates challenges the traditional transmission of monetary policy. However, recent academic research suggests that the central bank is not armless in such an environment. Unconventional monetary policy has been adopted by most developed markets central banks since the start of the Great Financial crisis. This paper also reviews potential limits and side-effects of such policies. Finally, some policy implications of tapering are presented.

Explaining the declined affordability of housing for low-income private renters across Western Europe.

The private rented sector (PRS) recently enjoyed a revival, in particular in the years before and after the Great Financial Crisis (GFC). At the same time however, affordability concerns have come to the fore. The main aim of this paper is to explain trends in housing affordability for lower-income households in the PRS across Western European countries, from a supply versus demand perspective. To this end we: (1) related trends in housing affordability to wider changes in housing systems, welfare regimes, demographic indicators and housing market financialisation; and (2) decomposed affordability trends in terms of rents and incomes, controlling for compositional shifts. We incorporated the spatial dimension by distinguishing between urban and rural regions. Although we could not explicitly test for the more fine-grained mechanisms relating housing market financialisation to increased ‘unaffordability’ of PRS-housing, our findings nevertheless warrant future research into this topic. In particular in countries with strong financialisation (Ireland, the Netherlands, Spain and Portugal) decreasing affordability arises from the fact that during the period 1995–2007 private rent increases were not compensated for sufficiently by income growth. We furthermore found that across urban regions, between 1995 and 2007, affordability worsened through demand pressure arising from in-migration. Changes after the GFC (up to 2013) were more limited and diverse.

Cranks and heretics: the importance of an analytical framework

The Journal’s September 2016 issue published a collection themed ‘Cranks’ and ‘Brave Heretics’: Rethinking Money and Banking after the Great Financial Crisis, largely addressing monetary reform from the heterodox tradition that includes the circuit approach, endogenous money theory, stock-flow consistent accounting and the (newer) modern money theory that integrates the chartalist, functional finance, sectoral balances and financial instability approaches. The symposium’s editors rightly reminded us that money has always provoked protracted and contentious disputes over economic theory and policy. Two of the papers (Nersisyan and Wray, 2016; Fontana and Sawyer, 2016) criticized post-global financial crisis (GFC) proposals that promote some version of narrow banking plus direct ‘money-financed’ deficit spending. Ours focused on developing a heterodox view of the nature of money that should inform policy reform. We argued that while these proposals are generally based on ‘sensible ideas rejected by the mainstream and labelled “crank” to discredit them’ (Nersisyan and Wray, 2016, p. 1311), they largely misunderstand how government spends and what banks do.

Financialization and Distribution from a Kaleckian Perspective: The United States, the United Kingdom, and Sweden Compared—Before and after the Crisis

In this article we analyze the effects of financialization on income distribution, before and after the Great Financial Crisis and the Great Recession, for the two liberal Anglo-Saxon economies, the United States and the United Kingdom, and for a typical Nordic welfare state economy, Sweden. We apply a Kaleckian perspective in which the focus will be on functional income distribution and thus on the relationship between financialization and the wage share or the gross profit share. According to this approach, financialization may affect aggregate wage or gross profit shares of the economy as a whole through three channels: first, the sectoral composition of the economy; second, the financial overhead costs and profit claims of the rentiers; and third, the bargaining power of workers and trade unions. We examine empirical indicators for each of these channels, both before and after the crisis. We find that the types of countries investigated here have shown broad similarities regarding redistribution before the crisis, however, with major differences in the underlying determinants. These differences have carried through to the period after the crisis and have led to different results regarding the development of distribution since then.

A Comment on Servaas Storm’s “The New Normal”

Accepting Professor Storm’s demolition of total factor productivity growth and production function-based reasoning, this article argues that to understand the great financial crisis and its aftermath requires an evolutionary perspective that goes beyond hysteresis and secular stagnation, that escapes the reification of potential output, and that recognizes how structural forces and not merely deficient demand have affected actual economic growth. It also requires a commonsense understanding of actual American social conditions—no, the middle class has not vanished—and an appreciation that raising living standards under present conditions requires social balance—a new emphasis on collective economic security and public consumption goods.

Macroeconomic flaws in the IMF’s ‘New’ Institutional view: The case of Brazil

In 2012, the IMF issued its ‘New’ Institutional View which endorsed using capital controls for international financial stability, given certain prerequisites. We argue this ‘View’ will be no more successful than the Fund’s other policy predecessors because it mandates solving capital flow-induced macroeconomic imbalances through ‘market-based’ adjustment measures rather than by using capital controls, thus relegating the latter to a secondary role. To present our argument, we use Brazil’s recent history as a proxy for the IMF’s current platform. This is because, despite explicitly not taking advice from the Fund, its actions have been, ironically, nonetheless consistent with the ‘New’ View’s updated prescriptions- which still culminated in crisis. As a result, regardless of the revisions it made in the wake of the Great Financial Crisis, the Fund’s new stance is incapable of averting and stabilizing a crisis; indeed, the case of Brazil suggests it is instead a recipe for creating and amplifying financial macroeconomic fragility.

The “market for information” – functions, problems and policy proposals

PurposeProblems arose in the “market for information” (MFI) during the “dot.com” boom, the Enron case, Northern Rock failure and during the great financial crisis (GFC) of 2007-2009. This paper aims to extend the understanding of the MFI through field research and theoretical sources. It also aims to understand the MFI during relatively stable periods and during periods of rapid change, crisis and failure. It seeks to use these insights to propose changes to reduce the possibilities for negative change and problems in the MFI.Design/methodology/approachField studies are used to develop an “empirical narrative” for ongoing MFI structures, processes and outcomes during relatively stable periods. The paper develops a “theoretical narrative” to extend the understanding of the MFI empirical insights.FindingsThe paper reveals that the MFI structure that includes knowledge and social context is central to ongoing MFI economic processes for MFI agents. Outcomes include changes in markets, firms and others. Changes and problems are means to understand interactions between the MFI social structure, knowledge, actions and outcomes as they rendered visible the previously invisible issues.Originality/valueThe paper shows that a coherent combination of new empirical narrative and theoretical narrative is essential to develop a critical stance, new policy prescriptions and new regulations to deal with problems and changes in the MFI. This provides the frame to propose changes in the “world of knowledge” and in (concentrated and elite) social and economic structures in the MFI. It proposes: making explicit shared knowledge in the MFI, monitoring change processes and promoting active formal learning.

Revisiting the Effect of Financial Development on Economic Growth after the 2008 Global Financial Crisis

A growing body of theoretical and empirical literature analyses the relationship between finance and economic growth. The relationship has been strongly supported by many empirical analyses. However, the 2008 Global Financial Crisis (GFC) and the significantly improved econometric techniques made scholars to revisit this relationship. The main motivation of this paper is to empirically revisit the relationship between financial development and economic growth, especially one under the effect of the world’s greatest financial crisis since the Great Depression. In this study, both fixed effect and dynamic panel data analysis are conducted by using 147 countries over the period of 2000-2013. The analysis results prove the destructive effect of the GFC on the relationship between financial development and economic growth. Also, the finding showed that the effect of traditional financial development proxies has reduced after the crisis.

Estimating global bank network connectedness

SummaryWe use LASSO methods to shrink, select, and estimate the high‐dimensional network linking the publicly traded subset of the world's top 150 banks, 2003–2014. We characterize static network connectedness using full‐sample estimation and dynamic network connectedness using rolling‐window estimation. Statically, we find that global bank equity connectedness has a strong geographic component, whereas country sovereign bond connectedness does not. Dynamically, we find that equity connectedness increases during crises, with clear peaks during the Great Financial Crisis and each wave of the subsequent European Debt Crisis, and with movements coming mostly from changes in cross‐country as opposed to within‐country bank linkages.

Macroeconomic Activity and Risk Indicators: An Unstable Relationship

We assess to what extent indicators of financial conditions can be considered relevant determinants and predictors of macroeconomic aggregates. The main finding is that controlling for default risk and risk aversion measures improves the forecasts of output, employment and loans, but that this improvement is largely attributable to the recession periods of 2001 and 2008. A structural VAR analysis further reveals that financial condition indicators display significant real effects only after the Great Financial Crisis. In particular, an unexpected increase in the credit spread in 2010 causes an output contraction that lasts for about two years, with an annualised through of 4.8%, and explains up to 35% of the forecast error variance of industrial production.

How Global Financial Crisis Affected the Financial Development and Economic Growth?

A growing body of theoretical and empirical literature analyses the relationship between finance and economic growth. The relationship has been strongly supported by many empirical analyses. However, Global Financial Crisis, 2008 and significantly improved econometric techniques made scholars to revisit this relationship. The main motivation of this paper is to empirically revisit the traditional financial development proxies relationship with economic growth after world’s second greatest financial crisis. In this study, both fixed effect and dynamic panel data analysis are conducted by using 147 countries over the period of 2000-2013. The analysis results prove the destructive effect of GFC, 2008 on the relationship between financial development and economic growth. Also, the finding showed that the significance of traditional financial development proxies has lowered after the crisis.

Can the Capital Markets Union deliver?

Summary: Compared to the U.S., the euro area has been underperforming in the wake of the Great Financial Crisis (GFC). This holds especially true for peripheral euro area economies. Whereas the U.S. is characterised by a financial system dominated by arms’ length (capital-market oriented) interaction between providers and users of funds, in Europe, in many cases, bank intermediation dominates. However, fragile, capital-constrained banks also meant a curtailed supply of funds, an issue especially for bank-dependent small or medium-sized firms (SMEs). Hence, it appears more than evident that easing the access to capital markets (in particular through securitization) should support medium-run growth perspectives, especially in peripheral euro area economies, those worst hit. There might, however, be structural (economic) reasons why SMEs prefer (local) bank relationships. Given substantial underlying idiosyncrasies, placing SME debt, in collateralised form, on capital markets has proven difficult. Finally, t...

Trends of constitutional amendments in Central Europe after 2008

The Visegrad Group, the Czech Republic, Hungary, Poland and Slovakia, which forms the core of Central and Eastern Europe once more became constitutional and democratic states as a result of the changes of 1989. The global economic and financial crisis that began in 2008 has naturally shaken up the Central European region, but the intensity of its impact varied from country to country. The period between 2008 and 2010 hit Hungary the hardest, which led to the landslide political transformation of 2010. However, the economic and financial crisis that began in 2008 did not in itself lead to a new wave of constitutional legislation in Central Europe. The creation of a new constitutional identity in Hungary with the adoption of the Fundamental Law of 2011 has more to do with the local, specific political, social and perhaps partially legal historical conditions. At this time, the other Visegrad countries can be characterised by maintenance of the constitutional status quo or only partial amendments. It is true that in these countries the turbulence caused by the crisis has not yet lead to a single party or coalition achieving the qualified majority required for constitutional reform. The situation in Poland after 2015 is still open but the new government does not have the necessary majority for the adoption of new constitution. The constitutional amendments adopted after 2008 were only a partial reaction to the great economic and financial crisis. Rather, many amendments were reflections on structural problems that had existed previously or problems arising in the course of day-to-day politics that had not been fully considered previously or they introduced long-debated and still timely changes. Among new trends, the protective measures applicable to natural assets and waters were introduced in the interest of future generations. These were inserted in a very forceful manner into the Hungarian and Slovakian constitutional systems during the post-crisis period. The reinforcement of such an ecological identity could be interpreted as a positive development. However, the public law documents of the region are also characterised by a certain conservative ‘revolutionary’ mood including the definition of marriage as a relationship between a man and a woman; some family law measures aimed at improving demographic conditions and the passages of the Hungarian Fundamental Law concerning a society based on work. The function of constitutional courts is also beginning to be re-evaluated in the region, mainly in Hungary and Poland.

Sovereign risk and the real exchange rate: A non-linear approach

We estimate a model of real exchange rate determination which is based on interest rate, term structure and purchasing power parities. This model takes into account sovereign risk as a key determinant with possibly non-linear effects. Estimations are performed for five Latin-American economies: Brazil, Chile, Colombia, Mexico and Peru. The results show that the model has good fit for all countries and the expected sign holds for most estimated coefficients. In particular, it is found that sovereign risk has a significantly positive relation with the real exchange rate. There is evidence of the non-linearity of this relation for Brazil, Colombia and Peru. This non-linearity implies coefficients that change with smooth transition as a function of international volatility indicators. In addition, we perform misalignment analyses and show that real exchange rates became over-depreciated during the initial development of the great financial crisis. Then, between 2011 and 2013, they went through a few periods of over-appreciation as international monetary and fiscal policies became expansive and international capital flows were bound to emerging economies searching for higher yields. Finally, the strong reduction of commodity prices led to a new over-depreciation episode during the second half of 2015 in most economies.

The tale of two great crises

The Great Depression of 1929 and the Great Financial Crisis of 2008 have been the two big events of the last 75 years. Not only have they produced serious economic consequences but they also changed our view of economics and policymaking. The aim of this work is to compare these two great crises and highlight similarities as well as differences. Monetary policy, the exchange rate system and the role of banks are our fields of investigation. We find interesting parallels between the two big events but also differences in their specific developments.

Researching the city and walking with street dwellers: Recreating urban encounters past and present

The art of recreating cities imaginatively and the critical act of reading urban fiction involve processes of research and learning that often include encounters with specific cities and their dwellers, prompting reflection on the forms and ethics of such encounters. Whether carrying out historical research into the past or observation of the rapid transformation of contemporary cities, writers and critics often combine the acquisition of documentary and experiential knowledge of urban spaces. Taking two different categories of writing by Simone Lazaroo, on the one hand her texts on past relations between Singapore and Australia, and on the other her current stories on global cities after the Great Financial Crisis, we explore the processes of learning before and through representation, and the ethics of human interaction in the contact zone of the global urban where, increasingly, the world’s expelled have become street-dwellers.

The end of mass homeownership? Changes in labour markets and housing tenure opportunities across Europe

With continued economic growth and expanding mortgage markets, until recently the pattern across advanced economies was of growing homeownership sectors. The Great Financial Crisis (GFC) has however, undercut this growth resulting in the contraction of homeownership access in many countries and the revival of private renting. This paper argues that these tenure changes are not solely a consequence of the GFC, and therefore, reversible once long-term growth returns. Rather, they are the consequences of more fundamental changes especially in labour markets. The very financialisation that fuelled the growth of homeownership has also led to a hollowing out of well-paid, secure jobs—exactly those that fit best with the taking of housing loans. We examine longer-term declines in labour market security across Europe from before the GFC, identifying an underlying correlation between deteriorated labour market conditions and homeownership access for young adults. While variations exist across European countries, there is evidence of common trends. We argue that the GFC both accelerated pre-existing labour insecurity dynamics and brought an end to offsetting such dynamics through the expansion of credit access with the likelihood of a return to an era of widespread homeownership growth starkly decreased.

An Institutional Perspective on International Financial Governance: How Much Has Happened Since the Crisis?

:This article studies some institutional trends in international financial regulation after the great crisis of 2008. It supports the idea that the largest financial corporations are working to create several components for an international self-regulation. Private firms make up the architecture of this complicated global mechanism, which is backed up by governments. Meanwhile, this built-up mechanism is based on several assumptions about the origins of the great financial crisis and on the capabilities of governments to reach the objectives they are expected to achieve. This article concludes that a new financial crisis will develop, and the “too-big-to-fail” financial corporations are already preparing strategies on resolution regimes.