How costly are debt crises? Furceri, Davide; Zdzienicka, Aleksandra
Journal of international money and finance,
06/2012, Volume:
31, Issue:
4
Journal Article
Peer reviewed
Open access
The aim of this paper is to assess the short and medium-term impact of debt crises on GDP. Using an unbalanced panel of 154 countries from 1970 to 2008, the paper shows that debt crises produce ...significant and long-lasting output losses, reducing output by about 10 percent after 8 years. The results also suggest that debt crises tend to be more detrimental than banking and currency crises. The significance of the results is robust to different specifications, identification and endogeneity checks, and datasets.
Following the central themes of this special forum, this article aims to move beyond binary debates on how China relates to the hitherto dominant US-led liberal order. The most debated outcomes - ...slipping into a Thucydides trap versus the resilience of the liberal international order - should be seen as two extreme cases that are unlikely to occur. Much more likely is a period with diminishing global leadership - a Kindleberger trap - and a metamorphosis of the liberal order as neo-liberal economics is increasingly infused with neo-statism. Analytically, I utilize a two-level analysis that traces historical processes at the level of the international political economy as well as the Chinese domestic level. China's emergent form of capitalism, Sino-capitalism, is conceived of as a multifarious force, both neo-statist and neo-liberal. It combines top-down state-centric modes of governance with bottom-up networked modes of entrepreneurship. By using the internationalization of the Chinese Renminbi (RMB) as a case study, I illustrate the dynamics by which Sino-capitalism impinges on the International Monetary System. Sino-capitalism's interactions with the liberal order are generating a mélange that joins neo-liberalism's emphasis on private capital and unfettered market forces with a neo-statist reinsertion of government to manage economies. This mélange is likely to be chaotic as the United States becomes selectively isolationist, while China's support of the existing order remains half-hearted. The developing chaotic mélange indicates that the global capitalist system could increasingly exhibit disorderly, dysfunctional and even dangerous trends.
Financial crises are nothing new in the annals of history of the capitalistic path of economic development; indeed, they are part of business cycle. The theoretical basis for this is well entrenched ...in the concept of ‘Keynesian Cross’. Tales of crises date back centuries, but have taken a new turn as the race for more globalization goes on, which involves liberalizing trade and opening up the financial sector. This has made many nations vulnerable to crises that are likely to be repeated, perhaps frequently. Based on recent experience, warning signs can be seen in the dollar-centric exchange rate, which is the mainstay for the stability of the current global financial system. To a careful observer, there is clearly fatigue in the system.
The international monetary system currently suffers from three structural flaws that disproportionately affect developing nations: an asymmetric balance of payments adjustment mechanism, the Triffin ...Paradox, and an inequity bias against developing nations. Thus, as currently constituted, this global monetary framework is biased against the development prospects of developing nations and is antagonistic to their development efforts. However, the author’s contention is that developing countries can use a Job Guarantee (JG) to address these shortcomings because it offers five significant international macroeconomic benefits that involve presenting developing nations with an enhanced degree of domestic policy options, altering how global liquidity is provisioned and the need for acquiring it, and inciting a direct challenge to the neoliberal conventional wisdom of global political economy. As a result, developing nations can use a JG as a cornerstone in any development strategy that seeks to sustainably mobilize underemployed labor resources and increase productive capacity and utilization rates while remaining free of the structural constraints imposed by the international monetary system.
JEL Classification: B52, O11, F40
Addressing ecological crises such as climate change within the current International Monetary System (IMS) will likely be impossible. International monetary relations are built upon a hierarchy ...between currencies, which generates structural Core-Periphery imbalances and prevents Peripheral countries from attracting the long-term investments necessary for an ecological transition. While propositions have emerged to reform the IMS in order to address both global imbalances and ecological crises, they typically approach these issues as separate phenomena. In contrast, this paper develops a political ecology of global imbalances to explore how currency hierarchies are constituted and maintained through ecological hierarchies: monetary dominance depends upon the continuous and uneven flow of resources from Peripheral to Core countries. This connection between monetary and ecological hierarchies is particularly visible through the Chimerica relationship, which linked the international dominance of the US dollar to China's coal-powered development. While China is now transitioning away from its Peripheral status by seeking to reconfigure currency and ecological hierarchies to support its own resource-intensive growth, this trend also increases the likelihood of systemic ecological crises. This suggests that the quest for a balanced and green IMS requires a dramatic shift away from the Core-driven imperial modes of production, consumption and living.
Financial instability threatens the global economy. The volatility of capital movements across national borders has led many observers to argue for a reformed "global financial architecture," a body ...of consistent rules and institutions to prevent financial crises. Yet regulators have a decidedly mixed record in their attempts to create global standards for the financial system. David Andrew Singer seeks to explain the varying pressures on regulatory agencies to negotiate internationally acceptable rules and suggests that the variation is largely traceable to the different domestic political pressures faced by regulators.
InRegulating Capital, Singer provides both a theory of the effects of domestic pressures on international regulation and a detailed analysis of regulators' attempts at international rulemaking in banking, securities, and insurance. Singer addresses the complexities of global finance in an accessible style, and he does not turn away from the more dramatic aspects of globalization; he makes clear the international implications of bank failures and stock-market crashes, the rise of derivatives, and the catastrophic financial losses caused by Hurricane Katrina and the events of September 11.
The digital transformation of money has raised concerns about how it affects sovereignty. The rise of cryptocurrencies and the possibility of global payment systems based on stablecoins and digital ...currencies issued by central banks require a re-evaluation of the effects of these changes on the concept of money as a public good and legal tender. The analysis will start focusing on this experience and its implications to shift to the case where a cryptocurrency is used as a central bank currency. Then an attempt will be made to frame the distinctive features of a digital currency issued by a central bank.
Following De Grauwe (2016), this research advances the idea according to which economies that are part of a monetary union issue debt in a medium of exchange they cannot control: financial markets ...develop the capacity to impose default on such economies. We are interested in how previous research analyzed the notion that, when economies are autonomous and they employ the exchange rate as a vehicle to handle asymmetric shocks, they confront comparable constraints on the performance of exchange rate strategies. When a monetary union is affected by significant asymmetric shocks, the member economies have to deal with tough adjustment issues. Empirical and secondary data are used to back the assertion that, in a monetary union, economies that are affected by long-lasting asymmetric demand shocks demand wage elasticity and labor flexibility to rectify for them, and if the latter generate substantial budget deficits, financial markets tend to intensify the consequences of the asymmetric shocks, boosting the demand for severe regulation of wages and labor flexibility. Our article makes conceptual and methodological contributions to the view that member economies of a monetary union are exposed to varying market reactions, generating more volatility in the business cycle: an economy undergoing a recession and a rise in the budget deficit might be affected by wide-ranging transactions of its government bonds, causing a liquidity crisis and superior interest rates, and possibly coercing the government of that economy to adopt budgetary austerity measures, thus intensifying the recession.
We assess the importance of individual and institutional experience in shaping macroeconomic policy by studying the persistence of gold standard monetary practices in the Bretton Woods system. Using ...new data from the IMF archives, we show that, although they were not required to, countries continued to back currency in circulation with gold. The longer an institution spent in the gold standard (and the older the policymakers), the tighter the link between gold and currency. Such “old habits” prevented dollars and gold from working as perfect substitutes and ultimately contributed to the demise of the Bretton Woods system. Our findings highlight the persistence of past practices, even in the face of radical institutional change, and its consequences on the international monetary system.
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