1 Diploma Macro Paper 2 Monetary Macroeconomics Lecture 8 Origins of recent crises Mark Hayes.
-
Upload
anthony-hoover -
Category
Documents
-
view
216 -
download
1
Transcript of 1 Diploma Macro Paper 2 Monetary Macroeconomics Lecture 8 Origins of recent crises Mark Hayes.
1
Diploma Macro Paper 2
Monetary Macroeconomics
Lecture 8
Origins of recent crises
Mark Hayes
Source: Reinhart, 2010, vox-eu
The Anatomy of a Financial CrisisFalling confidence in many financial institutions
Asset-price bust
Insolvency at some financial institutions
Credit crunch (banks reduce lending)
Recession (from falling aggregate demand)
Vicious circle (recession puts more pressure on asset prices and financial institutions)
Chart A MPC’s evaluation of GDP at the time of theMay Report, ONS data at that time and latest ONS data(a)
Sources: ONS and Bank calculations.
(a) Chained-volume measures. The fan chart depicts an estimated probability distribution for GDP over the past. It can be interpreted in the same way as the fan charts in Section 5.
5
Minsky’s balance sheets
Hedged
Debt can be repaid in full from cashflow
Speculative
Interest can be paid from cashflow but repayment of principal depends on sale of assets or refinance
Ponzi
Payment of interest depends on refinancing
6
The balance of payments =
current account balance Exports less imports of goods (trade balance,
NX in the model) + exports less imports of services + net cross-border investment income + net cross-border labour income
+ capital account (net sales of securities to non-residents less purchases from non-residents)
= official financing (e.g. forex reserves change)
7
National income identity
𝑁𝑋=−𝑆𝐹=𝑆𝐺+𝑆𝑃− 𝐼
𝐼=𝑆𝐺+𝑆𝑃+𝑆𝐹
∆ 𝐼=∆𝑆𝐹
−∆𝑆𝑃=∆𝑆𝐹
−∆𝑆𝐺=∆𝑆𝐹
Relative Unit Labour Cost/ international competitiveness
70
80
90
100
110
120
130
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: OECD, Economic Outlook, 2013
1998 =
100 France
Germany
Greece
Italy
Spain
United Kingdom
Source: Eurostat, 2011
11
Further reading
Kindleberger, Charles P. (1989, 2/e) Manias, Panics and Crashes, Basingstoke: Macmillan
Minsky, Hyman P. (1986) Stabilizing An Unstable Economy, New York: McGraw Hill
Cesaratto, Sergio (2013) The implications of TARGET2 in the European balance of payments crisis and beyond, European Journal of Economics and Economic Policies: Intervention, Vol. 10 No. 3, pp. 359–382