NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Global Financial Crisis

Symposium at the National Press Club
September 22, 2011




This symposium will distill the findings of a recent research project on the sources and transmission mechanisms of the 2008 crisis. Leading researchers who participated in this project, as well as representatives of central banks, international organizations, private sector financial institutions, and members of the press, will participate in the dialogue. The discussion will focus on such questions as: What was the role of increased financial integration, capital flows, and global imbalances in causing the crisis? How did banks, investors, and trade drive contagion during the recent crisis? How can countries reduce their vulnerability to crises? Can capital controls and reserve accumulation effectively stabilize economies—or is it time for a new approach? Click here for a link to information on the related research conference at Bretton Woods and for executive summaries of the research papers .

The symposium at the National Press Club is structured to maximize opportunities for discussion of the key issues. Each panel will debate one or more of the questions outlined above, followed by interactive question-and-answer sessions with the audience and breaks for informal conversation. There will be distinguished set of panelists—including not only leading academics, but also prominent investors, senior policymakers, and influential economic journalists.

The panels for the symposium will focus on three broad questions:

1. Financial Integration, Capital Flows and Global Imbalances: Aggravating or Ameliorating Crises?

2. Global Contagion: What was the Role of Banks, Investors and Trade?

3. Reducing Country Vulnerability: Capital Controls, Reserves, the IMF, or Something New?

Below is more information on each topic and list of related papers. Please click here for the symposium agenda.

1. Financial Integration, Capital Flows and Global Imbalances: Aggravating or Ameliorating Crises?

Financial globalization, international capital flows, and global imbalances increased dramatically before the crisis. These trends could have substantial benefits—such as providing greater access to capital for profitable investments and improving risk sharing and market discipline. These trends could also increase risks, however, as countries become more vulnerable to changes in investor sentiment and events in other parts of the world. This set of papers draws on lessons for the Global Financial crisis to consider the implications of increased financial globalization and cross-border capital flows. More specifically, they address questions such as:

  • What was the role of increased capital flows and global imbalances in causing the crisis? Were new financial instruments—such as asset-backed securities—an important part of this story?

  • What drives the extreme swings in capital flows between countries—including the “sudden stops” during the crisis and the more recent “surges” of capital into many emerging markets both before and soon after the crisis? What is the role of global factors versus contagion versus domestic policies?

  • Is there evidence that financial integration provided one of its theoretical benefits of transferring wealth across countries and stabilizing economies during the crisis? Are certain types of financial integration more beneficial or costly than others?

  • How did global imbalances adjust during the crisis and what is the outlook for the future?

Related papers:

2. Global Contagion: What was the Role of Banks, Investors and Trade?

When problems in the US subprime and housing markets emerged in the summer of 2007, most economists were slow to revise their optimistic outlook for the global economy and predicted that the slowdown would be “contained” to the U.S. economy. Few foresaw the risks to the financial system and global economy. Why did the crisis spread so quickly with such virulent effects on such different countries around the world? Why did the world transition so rapidly from a “global savings glut” to a sudden contraction in lending and liquidity. This set of papers evaluates why contagion occurred. It highlights the key role of major financial players such as banks and investors and attempts to better understand what drove their behavior during the crisis. More specifically, they address questions such as:

  • Was leverage too high before the crisis—explaining why a shock to the U.S. housing market was magnified to have such global effects? If so—where was leverage the greatest problem?

  • What was the role of international banks in spreading the crisis across borders? What drove this action by banks?

  • What was the role of investors in spreading the crisis across borders? Were global factors or domestic economic policies more important in driving their actions? Were investment funds simply responding to withdrawals by investors or magnifying the crisis due to decisions made by portfolio managers?

  • If liquidity shortages were a critical part of the transmission of the crisis, how effective were policies to increase liquidity and address dollar shortages—such as the U.S. Federal Reserve’s Swap Arrangements effective? Should these be made permanent or expanded or included in international institutions as part of a standard response kit to crises?

  • What was the relative importance of real effects through trade relative to these financial effects?

Related papers:

3. Reducing Country Vulnerability: Capital Controls, Reserves, the IMF, or Something New?

How can countries better protect themselves in this era of volatile capital flows and closer financial integration? The scale of emergency lending in response to financial crises has grown dramatically, suggesting that despite improved macroeconomic management in many countries, vulnerability to crises may not have improved. The recent crisis provides a case study to learn which strategies were more effective at supporting countries as the global economy deteriorated. What are the benefits and costs of strategies such as accumulating reserves or implementing capital controls and prudential regulations? How can international institutions and the global financial architecture be improved –especially as many crises in the future may occur in large developed economies for which a traditional “bailout package” will not be an option? More specifically, this set of papers addresses issues such as:

  • Did the strategy adopted by several countries in Asia and the Middle East of accumulating large reserve stock piles effectively protect these economies during the crisis?

  • Is there evidence that capital controls can effectively reduce country vulnerability? What are the relative advantages and disadvantages of capital controls and closely related macroprudential regulations?

  • Does the recent shift away from debt restructuring towards larger bailouts make sense? Is there a way to facilitate restructuring through mechanisms such as sovereign cocos or growth indexing in order to reduce the need for large bailouts?

  • Are there other changes to the global financial architecture that should be discussed in order to reduce country vulnerability to crises in the future?

Related Papers:

 
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