Curbing the Credit Cycle Aikman, David; Haldane, Andrew G.; Nelson, Benjamin D.
The Economic journal (London),
June 2015, Volume:
125, Issue:
585
Journal Article
Peer reviewed
Credit cycles have been a characteristic of advanced economies for over 100 years. On average, a sustained pick-up in the ratio of credit to GDP has been highly correlated with banking crises. The ...boom phases of the cycle are characterised by large deviations in credit from trend. A range of mechanisms can generate these effects, each of which has strategic complementarity between banks at its core. Macro-prudential policy could curb these credit cycles, both through raising the cost of maintaining risky portfolios and through an expectations channel that operates via banks' perceptions of other banks' actions.
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BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. ...Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk.
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DOBA, IJS, IZUM, KILJ, NUK, PILJ, PNG, SAZU, SIK, UILJ, UKNU, UL, UM, UPUK
Traditional economic theory could not explain, much less predict, the near collapse of the financial system and its long-lasting effects on the global economy. Since the 2008 crisis, there has been ...increasing interest in using ideas from complexity theory to make sense of economic and financial markets. Concepts, such as tipping points, networks, contagion, feedback, and resilience have entered the financial and regulatory lexicon, but actual use of complexity models and results remains at an early stage. Recent insights and techniques offer potential for better monitoring and management of highly interconnected economic and financial systems and, thus, may help anticipate and manage future crises.
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Complex systems. Complexity theory and financial regulation Battiston, Stefano; Farmer, J Doyne; Flache, Andreas ...
Science (American Association for the Advancement of Science),
2016-Feb-19, 20160219, Volume:
351, Issue:
6275
Journal Article
Peer reviewed
Open access
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Abstract The process of financialisation has been extensively studied and several stylised facts identified. Short-termism is one of these. This article analyses the role that changes in accounting ...rules have played in increasing short-termism in company management. Our study considers the adoption of the International Financial Reporting Standards in the European Union (EU), showing that the new accounting standards have altered companies’ sensitivity to investment opportunities, leading to underinvestment in the real economy. In doing so, our article highlights the public-policy profile of accounting standards setting and possible tensions with EU societal objectives. To the best of our knowledge, this is the first study empirically analysing the role of accounting rules in the financialisation of economy.
Macroeconomic modelling has been under intense scrutiny since the Great Financial Crisis, when serious shortcomings were exposed in the methodology used to understand the economy as a whole. ...Criticism has been levelled at the assumptions employed in the dominant models, particularly that economic agents are homogenous and optimising and that the economy is equilibrating. In a related paper (Haldane and Turrell Oxford Rev Econ Polic 34(1–2):219–251
2018
), we argue that an interdisciplinary approach to modelling in macroeconomics is beneficial. Here we focus on what one such approach - agent-based modelling, which has been extensively used across a wide range of disciplines - could do for macroeconomics. Agent-based models are complementary to existing approaches to macroeconomics and are particularly well-suited to answering questions where complexity, heterogeneity, networks, and heuristics play an important role.
During the financial crisis, monetary policy was loosened significantly. Debate continues about the extent to which low interest rates and quantitative easing (QE) may have had adverse distributional ...impacts, whether by income, wealth, age or region. Using quantified simulations on micro data, I show that looser monetary policy had a significantly positive financial impact on the majority of cohorts of UK society. The impact of monetary policy loosening on income and wealth inequality was small and the overall impact on household welfare significantly positive. These results differ from public perceptions of monetary policy. Personalised information on the impact of monetary policy on household balance sheets could help to correct these misperceptions.
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FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Macroeconomic modelling has been under intense scrutiny since the Great Financial Crisis, when serious shortcomings were exposed in the methodology used to understand the economy as a whole. ...Criticism has been levelled at the assumptions employed in the dominant models, particularly that economic agents are homogeneous and optimizing and that the economy is equilibrating. This paper seeks to explore an interdisciplinary approach to macroeconomic modelling, with techniques drawn from other (natural and social) sciences. Specifically, it discusses agent-based modelling, which is used across a wide range of disciplines, as an example of such a technique. Agent-based models are complementary to existing approaches and are suited to answering macroeconomic questions where complexity, heterogeneity, networks, and heuristics play an important role.
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9.
Measuring the costs of short-termism Davies, Richard; Haldane, Andrew G.; Nielsen, Mette ...
Journal of financial stability,
06/2014, Volume:
12
Journal Article
Peer reviewed
A potential cost of modern capital markets is short-termism, with agents in the financial intermediation chain weighing near-term outcomes too heavily at the expense of longer-term opportunities and ...thus forgoing valuable investment projects and potential output. This paper sets out an analytical framework and empirical estimates of the potential costs of short-termism arising from distortions to the cost of capital and investment intentions.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
La modelación macroeconómica está bajo intenso escrutinio desde la gran crisis financiera, que dejó al descubierto los graves defectos de la metodología utilizada para entender la economía en su ...conjunto. Se critican los supuestos empleados en los modelos dominantes, en particular que los agentes económicos son homogéneos y optimizadores y que la economía se equilibra. Este escrito explora un enfoque interdisciplinario de modelación macroeconómica con técnicas tomadas de otras ciencias, y examina la modelación basada en agentes como ejemplo de esas técnicas. Los modelos basados en agentes complementan los enfoques existentes y son adecuados para responder preguntas macroeconómicas donde la complejidad, la heterogeneidad, las redes y las heurísticas cumplen un papel importante.
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