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This paper investigates the effects of financial deregulation on the energy enterprises' operational risks in China, based on 230 Chinese energy enterprises' yearly data spanning from 2003 to 2018. The results show that financial deregulation can lower the energy enterprise's operational risks through easing financing constraints and reversing the financialization tendency of energy enterprises. In addition, the impact of financial deregulation is heterogeneous across different features of energy enterprises. After replacing core indicators, changing model settings, and solving endogenous problems, the above conclusions are still robust, which provides robust evidence from the perspective of the interest rates liberalization.

While economic theory suggests a wide range of potential determinants of income inequality, there is little consensus regarding the most relevant ones. Such a lack of consensus reflects, to an important extent, the impact of model uncertainty. Using model-averaging techniques—specifically WALS (weighted-average least squares)—to get at a robust set of determinants, our results underscore the multiplicity of factors behind rising national-level inequalities. In the cross-section, the level of development and demographics, as well as unemployment and globalization, seem to be key drivers. Trade and financial globalization have asymmetric effects, with trade integration associated with lower inequality, and financial globalization with higher inequality. Financial deregulation and technological change seem to be important drivers of inequality, particularly in advanced economies.

How have credit markets evolved in the long-run around the world? I present evidence based on a novel sectorally disaggregated dataset on credit to the private sector for 120 countries for 1940-2014, as well as new series on total credit going back to 1910. Over the last 50 years, household credit has risen dramatically not only in advanced but also emerging economies. Mortgage lending only accounts for part of the story: particularly in developing countries, consumer credit accounts for much of this growth. I show that corporate lending has essentially stalled relative to GDP since around 1980, which is not explained by the development of global bond markets, cross-border lending, or trade credit. While the main drivers are country-specific, the rise of household credit correlates with financial deregulation, information sharing institutions, demographic shifts, inequality, and legal frameworks.

The chapter analyzes in detail the successful reform of the Australian model. Just as in Sweden, it took Australia 25–30 years to change a largely failing model. The process can be divided into several stages: financial deregulation and a series of structural reforms; from a banana republic to a new narrative; debt reduction and continued reforms creating a new model; and, finally, the reform process coming to a halt.

Within the financialisation literature, a number of approaches identify the coexistence of financial expansion and productive stagnation. Yet there is no consensus on which direction causality operates between these two phenomena. This impasse has been widened by the lack of attention paid to the role of statecraft strategies in mediating possible causal mechanisms. This article contributes to rectifying this shortcoming by focusing on the governance advantages granted to states through financial deregulation. By presenting archival evidence on Britain’s 1971 Competition and Credit Control deregulation, this article lends support to financialisation accounts that argue that weaknesses in the productive economy spurred financial expansion, yet it also indicates that the state’s desire for depoliticised forms of governance played a crucial role in mediating this relationship. This further suggests that International Political Economy should focus on the strategic manner in which states relate to mar...

Financial activity has become increasingly important in affluent economies in recent decades. Because this ‘financialization’ distributes costs and benefits unevenly across groups, politics and policy likely affect the process. Therefore, this article discusses how changes in the power of organizations representing the ‘winners’ and ‘losers’ of financialization affect its pace. An analysis of the United States from 1949–2005, shows that when unions are stronger, and when the Democratic Party is in power and is more reliant on the support of working-class voters, financialization is slower. In contrast, when the financial industry is more highly mobilized into politics, financialization is faster. The study also finds that financial deregulation was one policy translating the political power of these actors into economic outcomes.

Emerging market experience over the past two decades has revealed the tenuous links between external financial integration and faster growth, and the proclivity of such integration to fuel costly crises. Emerging markets learned, converging to the middle ground of the macroeconomic trilemma. Following their crises of 1997–2001, emerging markets added financial stability as a goal, self‐insured by building up international reserves, and adopted a public finance approach to financial integration. The global crisis of 2008–09 illustrated that the advanced economies “overshot” the optimal degree of financial deregulation, while the resilience of the emerging markets validated their public finance approach to financial integration.

In this paper, I examine how the lending relationships between banks and their borrowers affect the quality of analysts’ earnings forecasts after financial deregulation in Japan. My findings show that short-term lending relationships improve the quality of analysts’ earnings forecasts and that these earnings forecasts are useful for predicting future returns. In contrast, long-term lending relationships decay the quality of forecast and are not valuable for the prediction of future returns. These empirical results indicate that the informational advantage that commercial banks acquire is short-term and that the costs of lending relationships surpass the informational benefits in the long run.

This paper examines the impact on firm value from the restructuring process of the keiretsu system due to Japan's deregulation. We focus on unique internal restructuring transactions called “spin-ins” that are triggered by the Amendment of the Commercial Code in 2001. We show that significant positive abnormal returns exist around the announcement of the spin-ins. These announcement returns have a positive relation to keiretsu affiliation and bank financing. Also, we find that Japanese spin-ins result in a significant improvement in investment-Q sensitivity, especially for keiretsu firms. Our results support the argument that the keiretsu system has transformed itself into a more efficient organization through the recent deregulation in financial markets.

In this paper we present a new data set on bank credit in four categories: home mortgages, consumer credit, bank loans to non-bank financials, and loans to non-financial business, for 74 economies over 1990–2013. We offer a full description of sources and methods of data collection and construction and comparisons with adjacent data sets. We document key trends including the shift in bank credit allocation away from traditional business lending. The literature suggests substantial consequences of this 'debt shift' for growth, income distribution and macroeconomic resilience, which motivated this data construction. A second contribution is to analyze drivers of debt shift in fixed-effects and system-GMM regressions for the full sample and separately for advanced and emerging economies. We find that debt shift is larger in advanced economies with a stronger presence of foreign banks and higher trade. Financial deregulation strongly correlates with debt shift.

Are there simple and observable aggregate statistics that might help determine and forecast the degree of wealth inequality? Do they explain the differences in wealth inequality across economies and over time? To answer these questions, we build a general equilibrium, neoclassical growth model, in which the stationary wealth distribution has heavy right tail with the Pareto tail index, Pt. In the simplest cases of the model, the tail index depends on interest rate (r), growth rate (g), aggregate labor income share (EY), and aggregate capital to output ratio, (KY), summarized in a formula Pt = Pt ( r,g,EY,KY) (rather than the simple gap r-g , put forth in Thomas Piketty's “Capital in the 21st century”). In addition, financial development, production technology, corporate and wealth taxes affect the tail index through their effects on these sufficient statistics. When we calibrate the model to the U.S. economy, we find that the model requires significant persistent heterogeneous returns to investment in order to generate the tail index of U.S. wealth distribution. In this calibration, earnings inequality and, to a lesser extent, initial wealth distribution have negligible effects on top end wealth inequality. The transition of the model economy after a uniform wealth destruction shock or changes in corporate tax (but not after a financial deregulation shock) produces the joint dynamics of EY, KY, and wealth inequality experienced in major developed economies after World War II. Lastly, we find empirical evidence for persistent heterogeneous returns in the PSID surveys.

Dodd-Frank is a sprawling law, many pieces of which are unrelated to any financial crisis — past or future. What unifies the disparate pieces is an unquestioning faith in regulatory omniscience and broad grants of power to these infallible regulators. The law calls on regulators to step in where the rest of us — individuals, firms, and nongovernmental institutions — are supposedly destined to fail, namely, to identify and address all systemic and a wide array of nonsystemic risks. In giving such heavy responsibilities to regulators, Dodd-Frank’s drafters overlooked the fact that precrisis regulators missed risks and that precrisis regulatory design contributed to the buildup of risk. By giving regulators an outsized role, Dodd-Frank suppresses the market’s intrinsic disciplining mechanisms and builds bailout expectations. Revisiting Dodd-Frank thus requires a marked change in perspective — a shift away from the comforting but ineffective “entrust the financial system to the skilled hands of the all-knowing regulators” approach to financial regulation, as well as a piece-by-piece substantive overhaul.

Sowels highlights the historical background of the US–UK relationship and the various phases it has been through. He shows that despite being deep-rooted and based on the same ethos, it is not devoid of complexity. Sowels argues that the relationship between the two countries in the field of finance is characterized by both synergies and economic rivalry. Indeed, even though those economic partners can be complementary and even cooperate in this sector, they are also direct competitors in some financial mar and Capital Markets Department kets. But however true this can be at a certain time, roles can change as circumstances evolve. Be that as it may, this side of the Anglo-American relationship appears much more balanced than it is in the international political and military spheres.

The current financial crisis has renewed interest in the Nordic experience of the mid-1990s. In addition to investigating similarities and differences between then and now, the crisis resolution mechanisms adopted by the respective governments are also worthwhile studying, because they bear important lessons for today. The authors focus in particular on the economic policy reactions to the crisis. It is a rich, comprehensive and thought-provoking work, and it is quite different from earlier surveys on the Nordic crisis for three main reasons: It gives new perspectives, it asks new and relevant questions, and it relates economic policy phenomena to political economy aspects of the crisis. I will focus my remarks on five key themes, (1) financial deregulation and the debt deflation process, (2) policy response, (3) leaning against the wind, (4) the dangers of financial ignorance, and (5) the dangers of trying to learn from past crises.

This article analyses current housing market conditions in Australia; specifically the factors that have caused increased housing prices in recent years and their implications. The article finds that the number of home owners with a mortgage and the number of renters have increased. For owners with a mortgage, average housing costs escalated substantially. Interest rates, investment demand, economic climate, financial deregulation and innovation, land supply and the land-use planning system, government taxes, levies and charges, demography, economic growth and wealth effect all play a vital role in influencing housing prices. Rising house prices positively impact on home owners' wealth, aggregate demand, employment and real GDP, and reduce affordability of first-home buyers and wellbeing of Australians in aggregate. It is argued that increasing the supply of housing, approval of tax-free savings for first-home buyers, regional development and reduction of government taxes, levies and charges should be the...

recently remarked that: "you never let a seri ous crisis go to waste." Scholars like Dan Immergluck have apparently taken heed. A specialist in urban policy and mortgage lending, Immergluck realized that his topic had become ground zero in the current financial crisis, and he has written a book offering a broader context than is available in current journalistic accounts. Readers who can't distinguish between "CDO," "HBO" or "do si do" will learn a great deal here. They might not eavesdrop on conspir atorial negotiations between Hank Paulson, the Secretary of the Treasury and a former Goldman Sachs CEO, and Lloyd Blankfein, the current Goldman Sachs CEO, but they will find out that the current crisis was

The paper aims to assess changes in the level of competition in Poland’s banking sector in 1997-2007. Competition between banks is one of the most important factors behind the stability of the financial sector through its influence on the profitability of banks, access to external funding, and the country’s economic development as a whole. In this paper, the Panzar and Rosse model was applied to assess the level of competition in the banking sector. The results of the analysis of the Polish banking sector show that between 1997 and 2007 commercial banks operated under monopolistic competition. The degree of competition in the Polish banking sector is close to that in euro-area banking sectors (which is reflected by the values of the Panzar and Rosse measures). This applies to both corporate and retail banking. The main driving factor behind competition in the Polish banking sector was the country’s entry into the European Union. The same channels, i.e. consolidation and financial deregulation, that were observed in the EU at the time of adopting the euro influenced competition between banks in the Polish banking sector at the time of EU entry. This was mainly due to foreign capital from the euro area.

Monetary authorities rarely disclose the true reasons behind their policy reactions. A tracing of the policy reaction function to see if the monetary authority is applying simple rules holds the potential to offer profound insight into the past behavioral relationship between the monetary authority and economic agencies. A reasonable body of knowledge about the direction of monetary policy would, moreover, assist economic agencies in forming their expectations, which would in turn, be useful for the monetary authority in anticipating the likely trends of the overall economy. The main objective of this study is to track de Brouwer and Gilbert (2005) from the Australian financial deregulation era (from 1983 to 2002) to the present. Empirical findings show that the Reserve Bank of Australia (RBA) is more forward-looking when formulating monetary policy rather than backward-looking, and that inflation targeting plays a significant role in stabilizing the output of the economy.

The post-2007 financial crisis had similar roots to many previous crises since the 1970s: moral hazard and easy credit. It had a global impact because it was centred in the USA and UK, and hence triggered a fall in global demand and international trade. The paper argues that financial deregulation and innovation contributed to economic growth in the 1990s and 2000s in the USA and UK, as well as Australia and elsewhere, and with a dynamic risk-taking financial sector crises are the flip side of high growth as some risk-taking institutions end up making bad loans. The policy challenge is to reap the advantages of a dynamic financial sector while ensuring sufficient prudence to offset the inherent moral hazard when depositors are insured by the state. Australia did not experience a serious financial crisis in 2007–9, but active macropolicy was necessary to address the economic crisis. Nevertheless, future bank failures are to be expected and policy-makers need to design appropriate financial sector regulations in preparation.

This paper analyses UK unemployment in the period 1979-2005. Structural breaks are identified endogenously and they coincide with key institutional changes associated with financial deregulation and computerization in the New Economy. A vector error correction model is estimated and it confirms that computerization and financial deregulation have had counteracting impacts on UK unemployment. The results are consistent with three hypotheses: technological advances associated with computerization have moderated inflationary struggles between firms and insiders by increasing total factor productivity; financial deregulation has generated financial fragility fostering rises in unemployment; financial deregulation and computerization together have been associated with shifts from manufacturing towards services, fostering structural unemployment. © 2008 The Author. Journal compilation © 2008 Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research.

Recently, economist Thomas Piketty has used the steady state capital-to-income ratio to track the aggregate wealth to income ratio over the past three centuries and to make predictions about this ratio into the future. Over the last thirty years this ratio has increased to the high levels observed in Europe during the 1700-1900 period. Projections to the end of this century predict that the capital-income ratio will continue to increase due to declining growth rates for productivity and population. A higher capital-to-income ratio indicates increased wealth inequality since the ownership of capital is highly concentrated. In this note a simple integrated assessment model is used to examine the potential impacts of climate change on the capital-to-income ratio over the next two and a half centuries. Damages arising from climate change can affect the capital-to-income ratio and hence wealth inequality over the next two centuries in a more dramatic manner than the impact of financial deregulation has done in the past. Specifically, the capital-to-income ratio will fall if damage from climate change increases the depreciation rate of capital. However, this decline in the capital-to-income ratio is somewhat mitigated if climate change acts to slow labor-augmenting technical progress.

This paper shows that finance has been a key ingredient of long-term economic growth in OECD and G20 countries over the past half-century, but that there can be too much finance. The evidence indicates that at current levels of household and business credit further expansion slows rather than boosts growth. Causality from more credit to slower growth is supported by a novel empirical methodology which exploits changes in financial regulation across countries and time as a source of exogenous variation in financial size. The empirical analyses point to five factors that link more credit to slower growth: i) excessive financial deregulation, ii) a more pronounced increase in credit issuance by banks than other intermediaries, iii) too-big-to-fail guarantees by the public authorities for large financial institutions, iv) a lower quality of credit and v) a disproportionate rise of household compared with business credit. By contrast, expansions in stock market funding in general boost growth.

This study employs all quarterly time series currently available to endogenously determine the timing of structural breaks for various monetary aggregates and interest rates in Australia over the last 30 years. The Innovational Outlier model (IO) and the Additive Outlier model (AO) are then used to test for nonstationarity. After accounting for the single most significant structural break, the results from both models clearly indicate that the null of at least one unit root cannot be rejected for almost all series examined. The structural breaks found coincide with important policy changes during the period of financial deregulation starting in the 1980s.

© Springer-Verlag London 2015. Business-to-business and consumer-to-business transactions in the banking industry have witnessed a dramatic shift in the method of payment over the last two decades. This rapid growth had been initially fuelled by the early adoption of electronic payments such as credit and debit cards but now with the advent of mobile and internet technologies, non-cash transactions have grown even more rapidly. These technological developments have spurred a range of service innovations within the banking industry that has not only improved consumer convenience and reduced staffing and bank operating costs, but also increased the need for greater vigilance around security and fraud detection. This rapidly changing technology is also facilitating the entry of new payment providers in the financial sector with innovative products to meet the changing needs of consumers and businesses. The consequence is a rapidly changing banking industry.

This paper proposes a framework for analyzing the nexus between financial development and economic growth in terms of spillover effects. It is based on the production function theory and consists of two versions of the two-sector model. The framework is applied as a prototype to the case of Taiwan’s use of deflated annual data for 1961–1995. The empirical results show that the spillover effects of the financial-leading version dominate those of the real-fostering version in the case studied. Although these spillover series are significantly influenced by the financial development variables, they hardly reveal the structural changes caused by the events of financial deregulation.

This paper aims to investigate whether financial integration has taken place in the EU banking markets after stages of financial deregulation and transition period. We first measure bank cost and profit efficiencies using the stochastic frontier approach (SFA) for commercial banks operating in the 27 EU countries, and then we investigate the integration of EU banking efficiency over the period 2004-2010. By employing β- convergence and σ- convergence we assess the speed at which banking markets are integrated with regard to banking cost and profit efficiencies. The results seem to provide a solid evidence of convergence of cost and profit efficiency levels towards the averages in the entire EU, the old EU countries and the new EU countries groups. Nonetheless, the results also show that banks within the old EU countries are more integrated over the study period than their counterparts in the new EU countries particularly in the case of cost efficiency.

Since the major deregulation of Indonesian banking in the late 1980s the quality and availability of local banking services has significantly expanded. But controversy continues over the impact of deregulation on the industrial structure of banking in Indonesia. This paper uses micro data to examine the impact of deregulation on the costs and profitability of the state commercial banks in comparison with a benchmark sample of relatively efficient private banks. The sample period covers both the pre- and post- deregulation eras. The study finds that deregulation had a strong impact At the private banks, large cost reductions have been passed on to customers in the form of narrower intermediation margins By contrast, margins have barely changed at the state banks. Profitability measured in relation to equity has fallen significantly, especially at state banks For recent years, the margins are not out of line with available data on international comparators.

The special financial needs of small business have long been a policy issue in Australia, with the claim often made that capital markets are less than fully responsive to this sector. This paper argues that despite financial deregulation, the small business sector is yet to fully benefit from improved supply of finance. The future reform process should not be jeopardised by precipitate policy changes (such as bank mergers) which could upset the delicate balance of forces currently emerging in the industry. Further, proactive policies are needed to encourage the growth of secondary debt and primary equity capital markets for small business.

This article summarizes my recent investigation of the political debate, conducted through the media, over a crucial and defining policy in New Zealand's neo-liberal project (begun in 1984). The Employment Contracts Act (1991), representing an overhaul of New Zealand's industrial relations system, was introduced at a particular historical conjuncture. Conditions peculiar to the 1990/1991 period contributed to the passage of legislation which reinforced the construction of neo-liberal hegemony. These conditions were constituted by the `restructured' economy (financial deregulation, floating the currency, privatization of state assets), the prevailing ideological climate (anti-interventionism), the balance of political forces and the character of mediated information. Under the fourth Labour government (1984-90), opposition to the neo-liberal project was weakened or marginalized. The opposition National Party exploited anti-government disillusionment to gain power in October 1990. But the new administration set out to further the neo-liberal project through `restructuring' social welfare and industrial relations. The communications offensive launched by National to accompany its employment contracts proposal was largely successful. To clarify the factors contributing to this outcome, the article compares the passage of the Employment Contracts Act with a communications offensive which failed; namely, the British poll tax (as discussed by Deacon and Golding, 1994).

The role of the central bank as an instrument of government economic supervision has entered a period of flux, owing to the combined forces of financial deregulation, technological advance, monetary innovation and banking globalisation. This paper discusses, with special reference to Australia, pressing areas for potential reform in the role of the central bank including greater independence, international coordination, splitting of core functions, and the creation of a ‘super-regulator’.

Economic reform in Australia certainly did not start with the Hilmer Report — it has been underway for the last 15 or so years. It began with financial deregulation and floating of the Australian dollar in the 1980s and the reduction of tariff protection, and includes more recent initiatives such as moving from the centralized wage fixing system to more flexible enterprise bargaining arrangements, restructuring of government business enterprises, developments in public administration and most recently the focus on competition policy.

The three countries took different stances in regards to economic policy; the Czech Republic pursued a shock therapy regime which aimed to stabilise the economy, Hungary’s policy was more relaxed whilst Poland had an aggressive reform programme. Regarding monetary policy the Czech Republic used the discount rate as a tool for monetary policy, Hungary used indirect monetary policy and Poland had strict monetary policies which raised interest rates and devalued the zloty. After financial deregulation the impact of economic and monetary policy led to positive economic growth in the Czech Republic year on year. Hungary had a similar experience whilst Poland had an initial high increase in economic growth. This reduced over time but they still recorded positive economic growth over the period studied.

An important question in macroeconomics has been how the transmission mechanism of monetary policy works. In particular, the question of whether there exists a credit channel for the transmission of monetary policy has been one of the central themes in the discussion of the effectiveness of monetary policy. If this channel exists, then shocks to credit markets, particularly to bank loans, can have real effects. This paper presents new evidence on the credit hypothesis for the case of Mexico after 1984. We present a simple variant of the open economy IS-LM model which includes a credit channel. The model has the following empirical implications which are absent from models which do not include a credit channel. We show that changes in the expectations of devaluation, the desired cash/deposit ratio, and measures of financial deregulation, will have real effects because they change the quantity of credit available in the economy. We explore these implications of the model through standard VAR techniques and find that the evidence strongly supports the credit view. We find that the impact on economic activity of credit and nominal depreciation rate shocks is very significant.

This paper examines whether Japan's financial deregulation weakened the linkage between the Euroyen and Gensaki markets. It defines and analyzes the linkage of the two markets in terms of the persistence and predictability of yield spreads, as well as cross-market causality. By using Johansen tests and an error correction model, this paper shows first, cross-market causality before and after deregulation; and second, one common trend in interest rates, substantial Gensaki-Euroyen yield spreads, and a slower response of the one-month Gensaki-Euroyen yield spread to a shock after deregulation. Copyright 1995 by John Wiley & Sons, Ltd.

This article analyzes the recent conduct of monetary and exchange rate policies in the Czech Republic. The Czech Republic entered 1993 as a newly independent country. It has introduced inflation targeting and floating exchange rate regime. The multidimensional nature of the inflationtargeting definition explains why there is no consensus about whether or not it should be employed. However, the Czech Republic experience with inflation targeting seems to have been satisfactory. The authority has succeeded in maintaining a stable and moderate rate of inflation while enjoying economic growth. The exchange rate also has been stable. Using the Taylor rule, this article shows that the monetary authority has managed financial policy adequately and that the central bank looks forward rather than backward when it formulates monetary policy. Moreover, the exchange rate system, regardless of free-floating rhetoric, does not heavily influence the conduct of monetary policy in the Czech Republic because the central bank need not manipulate the exchange rate strongly and knows that exchange rate policy does not have a strong effect on the exchange rate itself under the global economy and financial deregulation.

The paper discusses the development of savings and household debt in the Nordic countries during the last two decades. The main conclusion is that the timing of political reforms in the 1980s and 1990s was fundamental for the development of consumption and household savings. In general, financial deregulation took place before tax reforms and lifting of foreign exchange controls. The wrong timing of these reforms resulted in households accumulating high debt burdens, which in turn led to a deep and longer recession or process of debt deflation than might otherwise have occurred. Copyright 1994 by Oxford University Press.

List of Illustrations 1. Capitalism and the Crisis: Bankers, Bonuses, Ideology, and Ignorance -Jeffrey Friedman PART I. THE CRISIS IN HISTORICAL PERSPECTIVE 2. An Accident Waiting to Happen: Securities Regulation and Financial Deregulation -Amar Bhide 3. Monetary Policy, Credit Extension, and Housing Bubbles, 2008 and 1929 -Steven Gjerstad and Vernon L. Smith PART II. WHAT WENT WRONG (AND WHAT DIDN'T)? 4. The Anatomy of a Murder: Who Killed the American Economy? -Joseph E. Stiglitz 5. Monetary Policy, Economic Policy, and the Financial Crisis: An Empirical Analysis of What Went Wrong -John B. Taylor 6. Housing Initiatives and Other Policy Factors -Peter J. Wallison 7. How Securitization Concentrated Risk in the Financial Sector -Viral V. Acharya and Matthew Richardson 8. A Regulated Meltdown: The Basel Rules and Banks' Leverage -Juliusz Jablecki and Mateusz Machaj 9. The Credit-Rating Agencies and the Subprime Debacle -Lawrence J. White 10. Credit-Default Swaps and the Crisis Peter J. Wallison PART III. ECONOMISTS, ECONOMICS, AND THE FINANCIAL CRISIS 11. The Crisis of 2008: Lessons for and from Economics -Daron Acemoglu 12. The Financial Crisis and the Systemic Failure of the Economics Profession -David Colander, Michael Goldberg, Armin Haas, Katarina Juselius, Alan Kirman, Thomas Lux, and Brigitte Sloth Afterword: The Causes of the Financial Crisis -Richard A. Posner List of Abbreviations and Acronyms Notes References List of Contributors Index Acknowledgments

This study looks at real estate price booms and busts in industrialised countries. It identifies major and persistent deviations from long term trends for 18 countries and estimates the probabilities of their occurrence using a Random Effects Panel Probit model over the period 1980-2007. It finds that 1) most recent housing booms have been very persistent and of a significant magnitude; 2) there appears to be a strong correlation between the persistence and magnitude of booms and subsequent busts; 3) economic costs (in terms of GDP losses during the post-boom phase) depend significantly on the magnitude and duration of the boom and money and credit developments during that period; 4) a number of policy variables, including short term interest rates, local and global money and credit developments, and the incidence of mortgage market deregulation affect significantly the probability of experiencing booms and busts; and 5) the model is quite successful in identifying booms and busts early on. JEL Classification: E32, R21, R31

In many ways, the banking crisis and economic recession provided less of a shock to the French economy than in many other countries.1 To start with, France has been managing the tensions of internationalization and the constraints of coexistence within the Eurozone for some time now, and the crisis merely amplified these. Moreover, the continued steering and regulatory role of the French state ensured that the worst excesses of financial deregulation were largely avoided and later provided reassurance of prudential management, allowing confidence to be restored. Finally, France’s elaborate system of social protection acted as a shock absorber, mitigating the impact of crisis.

The financial labor supply accelerator links hours worked to minimum down payments for durable good purchases. When these constrain a household's debt, a persistent wage increase generates a liquidity shortage. This limits the income effect, so hours worked grow. The mechanism generates a positive comovement of labor supply and household debt, the strength of which depends positively on the minimum downpayment rate. Its potential macroeconomic importance comes from these labor supply fluctuations' procyclicality. This paper examines the comovement of hours worked and debt at the household level with PSID data - before and after the financial deregulation of the early 1980s which reduced effective down payments - and compares the evidence with results from model-generated data. The household-level data displays positive comovement between hours worked and debt, which weakens after the financial reforms. An empirically realistic reduction of the model's required down payments generates a quantitatively similar weakening.

Although the Government of Indonesia attaches great importance to the promotion of small credits, little is known about the transaction costs of extending small credits by type of institution. To fill this gap the central bank of Indonesia launched a survey of 14 rural financial institutions. The survey results give useful insights for small credit policy preparation. After the financial deregulation of the past 10 years, the main challenge for the Indonesian financial authorities is to stimulate access to small credits without returning to the old ills of selective credit policies. Three complementary strategies of small credit promotion are suggested: firstly, promoting small and low-cost financial institutions according to the regional need for small credits; secondly, promoting interest differentiation by banks; and, thirdly, enhancing appropriate banking technologies at primary banks.

Después de un largo periodo de fuerte desregulación financiera no solo no se generaron condiciones de crecimiento económico sostenido, sino que las posibilidades de desarrollo se extinguieron por completo para el mundo entero, desde China a Estados Unidos y de Argentina al Congo. Se abandono la estrategia según la cual, en términos generales, es conveniente canalizar los excedentes nacionales hacia la economía real a través del financiamiento de largo plazo, sosteniendo el nivel de actividad y empleo como lo muestran las experiencias exitosas de desarrollo económico. Se argumenta desde esta perspectiva que el neoliberalismo ha fracasado. Ante la incapacidad de entidades como el Fondo Monetario Internacional y el Banco Mundial, se han ido generando iniciativas regionales de financiamiento en particular en América Latina y Asia. Además se hace la crítica de las limitaciones de las instituciones financieras internacionales no sólo por la insuficiencia, sino también por su escasa visión democrática. Por lo resulta indispensable que se adopte una regulación que evite las grandes irregularidades en las que cayó el sistema financiero internacional.

Over two decades of financial deregulation and rising competition have prompted financial institutions in the developed world, such as Lehman Brothers in the US and Fortis in Belgium, to develop structured products that are opaque and lack proper risk and regulatory controls. This sowed the seed for a financial disaster. Unlike AIG, the failures of Lehman Brothers and Fortis were more macro-driven, with the bursting of the US housing bubble putting the final nail in their coffins. The developed world banking sector will go through a period of re-regulation. Conventional banking practices will return, while complex financial engineering will be reduced sharply in the coming years of debt liquidation process. The pricing power of the universal banks will grow, due to their dominance in the financial community. This bodes well for the Chinese banking/financial conglomerate model when it comes to overseas expansion.

The US subprime crisis was rooted in a combination of financial deregulation and monetary policy oversight amid two decades of financial liberalisation in the 1980s and 1990s. Financial deregulation backfired and was manifest in twenty years of risky practices in lending and borrowing, securitisation of home loans and regulatory oversight. The bursting of the US housing bubble triggered the subprime crisis and spread it across the world. Securitisation on the back of loose regulations allowed banks to broadly distribute risks to investors, including banks, individuals, financial firms and hedge funds, who eventually suffered significant losses when mortgage payment defaults soared.

This paper explores the possible macroeconomic consequences of financial deregulation in an institutional environment where deregulation raises risks in banking. The central bank is supposed to maximize an objective function in which the probability of bank failure is an argument. It is then shown that the usual tradeoffs between policy objectives imply that financial deregulation will lead to more interest rate smoothing than would otherwise take place, and further that, because of restricted entry into banking, deregulation will call for some inflation. The transition toward deregulation raises special problems, which are likely to require a more gradual approach toward the stationary equilibrium.

This paper addresses the question of whether and how monetary policy ease may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates have been persistently and significantly below what Taylor rules would prescribe are correlated with increases in asset prices, especially as regards housing, though no systematic effects are identified on equity markets. Significant asset price increases, however, can also occur when interest rates are in line with Taylor rules, associated with periods of financial deregulation and/or innovation. The paper argues that accommodating monetary policy over the period 2002-2005, in combination with rapid financial market innovation, would seem in retrospect to have been among the factors behind the run-up in asset prices and consequent financial imbalances -- the (partial) unwinding of which helped trigger the 2007 financial market turmoil. Moreover, the paper points out that in certain situations policy rates may be a rather blunt tool for dealing with both the build-up and aftermath of financial imbalances, raising the question whether "macro-prudential" regulation could be useful.

Since the deregulation of Australian Housing Finance interest rates in early 1986 the market has determined the rate prospective home buyers must meet for their loans. Deregulation has brought higher interest rates and considerable public discussion concerning the plight of home buyers and these interest rate rises. The paper analyses post-1985 interest rate, house price and incomes data from six capital cities, and computes movements in the deposit gap (the difference between borrowing capacity and house prices). The empirical work demonstrates that, by the fourth quarter of 1988, house price inflation was the major factor contributing to a widening of the deposit gap.

Over the past few decades, financial markets became increasingly deregulated and household debt expanded, sometimes rapidly. It is thus possible that greater deregulation led to improved credit access for typically underserved groups, such as minorities and low-income families, relative to their counterparts. Credit access is measured here by loan denials, discouraged applications, and costs of credit. Based on data from the Federal Reserve’s Survey Consumer Finances and using multivariate tests, there is no clear trend, though, towards equalization of credit access from 1989 to 2004. Specifically, gaps in loan denials and discouraged applications only improved for Hispanics relative to Whites. Also, the gap in interest rates widened from 1989 to 2004 by race and income, while Hispanics possibly faced a growing difference in fees relative to Whites. Finally, by 2004, the gap in reliance on more costly sources of credit had shrunk slightly between minorities and lower-income families because the relative differences in borrowing from more expensive sources narrowed. Also, by 2004, lower-income families and minorities depended on more costly forms of credit more so than their counterparts to the same degree as they did in 1989. The results indicate that differences in credit access did not decrease on a broad basis during a period of large scale financial deregulation.