Progress and Confusion
Back Matter

Back Matter

Editor(s):
Olivier Blanchard, Kenneth Rogoff, and Raghuram Rajan
Published Date:
April 2016
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    List of Contributors

    Viral V. Acharya is the C. V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business.

    Anat R. Admati is the George G. C. Parker Professor of Finance and Economics at the Graduate School of Business at Stanford University. She is a Fellow of the Econometric Society, the recipient of multiple fellowships, and a past board member of the American Finance Association. She has served on a number of editorial boards and is currently a member of the FDIC Systemic Resolution Advisory Committee and the CFTC Market Risk Advisory Committee.

    Zeti Akhtar Aziz is the Governor of the Bank Negara Malaysia.

    Ben Bernanke served as Chairman of the Federal Reserve’s Board of Governors, after serving as Board member from 2002 to 2005. Bernanke also served as Chairman of the President’s Council of Economic Advisers from June 2005 to January 2006. He has also held a number of academic positions, including as Professor in Princeton’s Economic Department from 1985 to 2002. He is currently a Distinguished Fellow in Residence at the Brookings Institution.

    Olivier Blanchard is the first C. Fred Bergsten Senior Fellow at the Peterson Institute for International Economics. He is also the Robert M. Solow Professor Emeritus at MIT, and served as Economic Counsellor and Director of the Research Department of the IMF from 2008 to 2014.

    Marco Buti is the Director General for Economic and Financial Affairs of the European Commission.

    Ricardo J. Caballero is the Ford International Professor of Economics and Director of the World Economic Laboratory at the Massachusetts Institute of Technology, an NBER Research Associate, and an advisor of QFR Capital Management LP.

    Agustín Carstens serves as Governor of the Banco de Mexico. Currently he is Chairman of the International Monetary and Financial Committee at the IMF and of the Global Economic Meeting and the Economic Consultative Council at the BIS, where he is also a board member. Among other distinguished positions, he has also served as Deputy Managing Director at the IMF and Minister of Finance of Mexico.

    Jaime Caruana is the General Manager of the Bank for International Settlements since 2009. Previously, he was Director of the Monetary and Capital Markets Department of the International Monetary Fund. From 2000 to 2006, Mr Caruana was the Governor of the Bank of Spain and served on the Governing Council of the European Central Bank in that capacity. He was also the Chairman of the Basel Committee on Banking Supervision from 2003 to 2006. Prior to joining the Bank of Spain, Mr Caruana worked in the private financial sector for nearly ten years.

    J. Bradford DeLong is Professor of Economics at the University of California, Berkeley and was Deputy Assistant Secretary for Economic Policy of the US Treasury during the Clinton administration.

    Martin Feldstein is the George F. Baker Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, Cambridge, Massachusetts.

    Vitor Gaspar is Director of the Fiscal Affairs Department of the IMF. Prior to joining the IMF, he held a variety of senior policy positions at the Banco de Portugal, the ECB and European Commission, and served as Minister of State and Finance of Portugal during 2011 to 2013.

    John Geanakoplos is the James Tobin Professor of Economics at Yale University. He is a founding Partner of Ellington Capital Management, and an External Professor of the Santa Fe Institute. He was Director of the Cowles Foundation from 1996 to 2005 and Chairman of the Science Steering Committee of the Santa Fe Institute from 2009 to 2015.

    Philipp Hildebrand is Vice Chairman of BlackRock. Until January 2012, he served as Chairman of the Governing Board of the Swiss National Bank and Vice-Chairman of the Financial Stability Board.

    Gill Marcus served as Governor of the South African Reserve Bank from 2009 to 2014.

    Maurice Obstfeld is the Economic Counsellor and Director of the Research Department of the IMF. He is on leave from the University of California, Berkeley, where he is the Class of 1958 Professor of Economics.

    Luiz Awazu Pereira da Silva is former Deputy-Governor at the Central Bank of Brazil, from 2010 till 2015, in charge of Economic Policy and at present Deputy General Manager at the Bank for International Settlements.

    Rafael Portillo is a Senior Economist in the Research Department of the IMF and at the Joint Vienna Institute.

    Raghuram Rajan is the twenty-third Governor of the Reserve Bank of India. Prior to that, he was Chief Economic Advisor, Government of India, the Eric J. Gleacher Distinguished Service Professor of Finance at University of Chicago’s Booth School of Business, and Chief Economist at the IMF (2003–2006).

    Kenneth Rogoff is Thomas D. Cabot Professor at Harvard University. From 2001 to 2003, Rogoff served as Chief Economist at the IMF. He is also an international grandmaster of chess.

    Robert E. Rubin served as the seventieth US Secretary of the Treasury, from 1995 until 1999, and was the first Director of the National Economic Council from 1993 to 1994. He was Co-Chairman at Goldman Sachs and senior adviser to Citigroup. He is currently the Co-Chairman of the Council on Foreign Relations. In June 2014, he completed a twelve-year term as a member of the Harvard Corporation.

    Hyun Song Shin is the Economic Adviser and Head of Research at the Bank for International Settlements. Before joining the BIS, he was the Hughes-Rogers Professor of Economics at Princeton University.

    Lawrence H. Summers is the Charles W. Eliot University Professor and President Emeritus of Harvard University. During the past two decades, he has served in a series of senior policy positions, including as the seventy-first US Secretary of the Treasury for President Clinton, Director of the National Economic Council for President Obama, and Vice President of Development Economics and Chief Economist of the World Bank.

    Lars E. O. Svensson is Visiting Professor at the Stockholm School of Economics and Affiliated Professor at the IIES, Stockholm University. He has previously served as Deputy Governor of Sveriges Riksbank (2007–2013), Professor of Economics at Princeton University (2001–2009), and Professor at the IIES, Stockholm University (1984–2003).

    John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at Stanford’s Hoover Institution. He is also the Director of Stanford’s Introductory Economics Center. He has held several policy positions, including as US Under Secretary of the Treasury for International Affairs from 2001 to 2005.

    Paul Tucker is Chair of the Systemic Risk Council and a fellow at the Harvard Kennedy School. He was Deputy Governor at the Bank of England from 2009 to October 2013, having joined the bank in 1980. When this chapter was written, he was also a fellow at the Harvard Business School.

    José Viñals is currently the Financial Counsellor and Director of the Monetary and Capital Markets Department of the IMF. He is a member of the Financial Stability Board, representing the IMF. Prior to the IMF, he served as the Vice-Governor of the Central Bank of Spain, after holding successive positions there.

    Paul A. Volcker worked in the US federal government for almost thirty years, his service culminating in two terms as Chairman of the Board of Governors of the Federal Reserve System from 1979 to 1987. He has held several other positions, including as Chairman of the President’s Economic Recovery Advisory Board from November 2008 to 2011. Mr. Volcker launched the Volcker Alliance in 2013.

    Index

    • Adverse selection, 201

    • AIG, 68

    • Antitrust policy, 200

    • ASEAN+3, 259

    • Asia

      • capital shortfalls, 43, 48, 54

      • economic growth, 22

      • leveraging, 49–50

      • systemic risk, 48, 51

    • Asset allocation index, 76–77

    • Asset management companies, 76–77

      • redemptions, 77–78, 84

    • Asset managers, 75–79, 85

    • Asset prices

      • and capital flows, 124

      • and credit booms, 20

      • and credit surface, 146–147

      • and liquidation, 83–84

      • and risk perception, 32

      • and tail risks, 25

    • Asset purchases, 123, 127, 226, 247. See also Quantitative easing (QE)

    • Assets, safe, 261–266

    • Assets under management (AUM), 76–77

    • Audit the Fed bill, 157

    • Australia, 122

    • Automatic stabilization, 173–175

    • Bailouts, 63–64

    • Bank for International Settlements (BIS), 224

    • Banking

      • banker-depositor conflicts, 63

      • banking crises, 21

      • capital ratios, 65–66

      • corporate bonds, 178

      • covenant-light loans, 178

      • and downside risk, 64–65

      • equity funding, 63, 65–67

      • and macroprudential tools, 102

      • market-making, 83

      • models of, 67

      • procyclicality, 224

      • and putbacks, 149–150

      • regulation, 41, 73–75, 93

      • and ring-fencing, 217

      • and risk weighting, 64, 115, 122

      • shadow banking, 5, 57, 68–69, 81–86

      • and shadow hedge funds, 69

      • subsidies, 67

    • Bank of England, 95, 234

    • Bank of Japan, 234, 239

    • Basel Committee on Banking Supervision, 256

    • Basel II/Basel III regulations, 65–66, 73, 217

    • Behavioral economics, 201

    • Binomial leverage theorem, 145

    • Bond purchases, 247

    • Bond yields, 127, 250

    • Borrowing, 62, 143, 145–146, 148

      • corporate and homeowner loans, 149–150

      • covenant-light loans, 178

    • Brazil, 11–12, 35, 160, 221, 224–229

      • capital controls, 122, 225–226

      • foreign exchange hedge, 226–227

      • public debt, 227

    • Budget balance rules, 189

    • Bunds, 264

    • Capital

      • ratios, 4, 65–66, 288

      • reserve, 67

      • shortfalls, 43–45

      • surcharge, 67

    • Capital controls, 41, 64, 73, 233, 288

      • Brazil, 122, 225–226

      • capital outflow controls, 216hybrid securities, 67–68

      • and lending, 83

      • and macroprudential policy, 216

      • rationale, 216

      • ring-fencing as, 217

    • Capital exports, 35

    • Capital flow management, 160, 226.

      • See also Capital controls; Capital

      • inflows

    • Capital flows, 11, 124, 247, 288

    • Capital inflows, 233

    • EMEs, 124–125, 157, 159–160, 216, 221, 224–225, 236, 277

      • and exchange rate interventions, 159

    • Capital outflow controls, 216

    • Central banks, 7–9, 161. See also Federal Reserve; Macroprudential policy; Monetary policy; Policy rate

      • balance sheet size, 127, 133, 157, 289

      • and credit surface, 144, 148–149

      • and default, 143, 149

      • domestic mandate of, 246, 250

      • and financial stability, 157, 223

      • and global interest rates, 24

      • and IMFS, 249

      • independence of, 156–158

      • inflation targets, 20, 124

      • international reserves accumulation, 262–263

      • as market-makers, 240

      • and monetary policy, 100–101

      • multi-mission, 96–97

      • policy communication, 126–127

      • and price stability, 155–156

      • and QE, 262–263

      • and safe assets, 262–266

      • signaling, 126

      • and spillovers, 245, 249–250

      • swap lines, 252

      • targeting rules, 129

      • and zero lower bound, 138

    • Chiang Mai initiative of multilateralization (CMIM), 259

    • Chile, 160

    • China, 26, 35

      • capital shortfalls, 48, 51

      • debt-based stimulus, 56–57

      • and financial crisis in West, 19

      • growth model, 22

      • leveraging of banks, 54, 56

      • shadow banks, 57

      • systemic risk, 51–54

    • Clinton administration, 202

    • CoCos (contingent convertible capital instruments), 67

    • Collateral rate, 143–145. See also Leveraging

    • Commodities, Smithian, 200–202

    • Comovement of assets, 46

    • Competitive easing, 236–237, 265

    • Competitiveness, 159

    • Competitive reserve accumulation, 12, 236

    • Constrained discretion approach, 138

    • Corporate bonds, 74, 178, 236

    • Corporate tax rate, 180

    • Countercyclicality, 9, 187, 224

    • Covenant-light loans, 178

    • Credible commitment, 94–95

    • Credit

      • cycle, 89–90, 99–100

      • ratings/scores, 143

      • supply and demand, 99, 143, 145

      • tightness of, 143, 145, 148

    • Credit surface, 8, 23–25, 143–151

      • and asset prices, 146–147

      • corporate and homeowner loans, 149–150

      • and government borrowing, 207

      • and monetary policy, 148–149

      • multidimensional, 147

      • theory of, 145–146

    • Currencies. See also Exchange rates

      • EMEs, 159–160, 220

      • and growth, 279

      • sanctions, 214

    • Current account surpluses, 273–274

    • Cyclical loss-carry backward, 175

    • Cyclical stabilization, 197. See also

      • Financial stability

    • Debt. See also Public debt

      • debt forgiveness, 149–151

      • debt overhang, 33–34, 62, 267, 272

      • debt write-downs, 20

      • real debt, 110, 113–114

    • Debtlike hybrid securities, 67–68

    • Debt supercycle model, 2, 36

      • and financial crisis of 2008, 19, 23

      • and interest rates, 31

      • and macroeconomic models, 20

      • and secular stagnation theory, 25–26, 29, 31, 33

    • Debt-to-income (DTI) ratio, 108–111

    • Defaults, 143, 145, 151

    • Deflation, 270–273

    • Deleveraging, 2, 26, 49

    • Demand-stabilization policy, 200

    • Demographic decline, 21

    • Derivative markets, 63–64, 84–85

    • “Discretion versus Policy Rules in Practice,” 131

    • Distortions, 62

    • Dollar, U.S., 239, 247

    • Downside risk, 64–65, 68

    • Duration gap, 102–104

    • Dynamic inefficiency, 205

    • Economic growth, 267–281

      • Asia, 22

      • deflation, 270–273

      • EMEs, 273–278

      • growth imperative, 14, 270

      • growth regressions, 173

      • and interest rates, 199, 204

      • investment, 278

      • rationales for, 279–281

      • and technology, 22–23, 26

    • Education, 201

    • Emerging market economies (EMEs)

      • capital inflows, 124–125, 157, 159–160, 216, 221, 224–225, 236, 277

      • competitive easing, 236–237, 239

      • currencies, 159–160, 220

      • economic growth, 273–278

      • exchange rates, 213, 215, 221, 233–234, 274–276, 280–281

      • financial crises of 1990s, 220–221

      • financial recovery, 20, 226

      • and foreign interest rates, 125

      • host jurisdictions, 256

      • integration of, 241

      • macroprudential measures, 237

      • market interventions, 240

      • market turbulence, 238

      • monetary policy, 124–125, 221, 224–225

      • and policy cooperation, 259

      • policy rate adjustments, 240

      • pragmatic policy in, 219–222, 228, 236

      • quantitative easing, 239

      • reserves accumulation, 236–237

      • spillovers, 215, 241

      • UMP, 225–226

      • and U.S. payroll data, 239–240

    • Equity funding, 62–63, 65–68

    • ETFs, 84

    • Euro, 247

    • Europe. See also European Monetary Union (EMU); European Union (EU)

      • banking crisis, 44, 56

      • capital shortfalls, 43, 48, 54

      • and financial recovery, 19

      • insurance companies, 102

      • interest rates, 29

      • leveraging, 49–50

      • QE in, 264

      • regulatory response to 2008 crisis, 55–56

      • and secular stagnation, 34–35

      • systemic risk, 48

    • European Central Bank (ECB), 185, 234, 238–239

    • European Commission, 193

    • European Financial Stabilisation Mechanism, 185

    • European Financial Stability Facility, 185

    • European Monetary Union (EMU), 184, 187

      • and capital flow management, 226

      • complexity and authority, 191–192

      • design and implementation, 190–191

      • institutions, 192–193

    • European Stability Mechanism, 185

    • European Union (EU)

      • and financial crisis of 2007–2009, 55–56, 183–184

      • financial regulation, 216

      • fiscal policy, 10

      • fiscal rules, 183–190

      • and public debt, 188–189

      • and sovereign crisis, 185

      • unemployment, 271

    • Eurozone. See European Union (EU)

    • Exchange rates, 233

      • EMEs, 213, 215, 221, 233–234, 274–276, 280–281

      • flexible/floating, 11, 100, 213–218, 229

      • intervention, 158–159, 274–276, 281

      • and QE, 265

      • target zones, 213

      • and UMP, 277

    • Executives’ Meeting of East Asia and Pacific Central Banks (EMEAP), 259

    • Fannie Mae and Freddie Mac, 150, 178

    • Federal funds rate, 130, 132, 135–136, 139, 240

    • Federal Open Market Committee (FOMC), 129–131, 227, 238

    • Federal Reserve, 7–8, 86, 126, 234

      • balance sheet, 289

      • credibility, 131–132

      • foreign banking regulation, 217

      • inflation targets, 131–132

      • and legislation, 137

      • objectives, 129, 131

      • policy instruments, 132–133

      • policy timing, 181

      • political scrutiny of, 157

      • quantitative easing, 225–226, 238, 247

      • and repo rate, 133

      • and reverse repos, 133–134

      • rules-based policy, 135–137

      • runs, 134

    • Federal Reserve Act, 137

    • FICO score, 143–144

    • Financial crisis of 2007–2009, 219, 228, 234

      • and central banks, 156, 161

      • characteristics of, 19–20

      • and debt supercycle, 19, 23

      • European response, 55–56, 183–184

      • factors contributing to, 223

      • Fed actions, 136

      • and fiscal policy, 234

      • housing market, 61

      • hybrid securities, 67

      • and IMFS reforms, 256

      • and interconnectedness, 61

      • and leverage/prices cycle, 147

      • and monetary policy, 234

      • and policy cooperation, 258

      • recovery, 235, 239

      • responses to, 20–21, 220, 258

      • and risk weighting, 64

      • and secular stagnation, 23

      • and system fragility, 61–65

      • systemic risk, 48

      • U.S. rescue package, 54–55

    • Financial institutions

      • and capital shortfalls, 43–46

      • and compensation practices, 64

      • and conflicts of interest, 62–63

      • culture of, 42

      • debtlike hybrid securities, 67

      • and systemic risk, 43, 45

      • total number per region, 57

    • Financial regulation, 3–5. See also Capital controls

      • banking, 41, 73–75, 93

      • and capital shortfalls, 43

      • countercyclical instruments, 224

      • derivatives, 84

      • and equity funding, 65

      • failure of, 61

      • and hiding risk, 68

      • and institutional culture, 42

      • and international competition, 69

      • macroprudential policy, 84–85, 288

      • and market excesses, 82–83

      • and politics, 70

      • and public sector, 200

      • reform of, 3–4

      • and risk weighting, 64

      • securities, 79, 93

      • and shadow banking, 68

      • and systemic risk, 69–70, 73–79

      • U.S. recapitalization, 54–55

      • and weak institutions, 69

    • Financial stability

      • and central banks, 157, 223

      • and fiscal policy, 171–175, 186–187, 197

      • IMFS reforms, 256–257

      • and macroprudential policy, 122, 158, 178, 223

      • and monetary policy, 75, 107, 121– 124, 158–159, 223, 252, 258–259

    • Financial Stability Board (FSB), 224, 256

    • Financial Stability Oversight Council (FSOC), 178

    • Financial trilemma, 216

    • Fiscal Compact, 191

    • Fiscal countercyclicality, 9

    • Fiscal policy, 9–11, 14, 132, 165–194, 289–290

      • analytical tools, 170

      • asymmetric stabilization, 173

      • automatic stabilization, 173–175

      • countercyclicality, 187

      • and financial recovery, 21

      • and financial stability, 171–175, 186–187, 197

      • fiscal risks, 167–170

      • and investment, 179–180

      • and macroeconomic stability, 172

      • and monetary policy, 156, 177, 179–180, 187, 193

      • and public debt, 188

      • and quantitative easing (QE), 177–179

      • rules-based, 183–194

      • tax measures, 174–175

      • timing, 180–181

    • Fiscal stabilization coefficient (FISCO), 9, 171–173

    • Floating exchange rates, 11, 100, 213–218

      • and capital controls, 217

      • and international trade, 213–214

      • and monetary policy, 214

      • and national reactions to, 215

      • volatility, 229

    • Foreclosures, 150–151

    • Foreign exchange markets, 158–159, 222

    • Forward guidance, 140

    • France, 50–51

    • G-20, 224

    • GDP

      • and tax cuts, 179

      • and technology, 22–23

    • Germany, 35, 51, 102, 185–186

    • GLAC (Gone-concern Loss Absorbing Capacity) securities, 67

    • Global economy. See International

      • monetary and financial system (IMFS)

    • Global financial crisis. See Financial crisis of 2007–2009

    • Global savings glut, 274

    • Goldman Sachs, 83

    • Google, 201–202

    • Government. See also Fiscal policy

      • borrowing, 25, 203–205

      • debt, 10–11, 167, 170, 188–189, 198–200, 202–208, 290

      • and financial repression, 206–207

      • intervention, 165–166

      • as provider of services, 26

      • size of, 200–202, 208

      • spending, 25, 268

      • tax base, 207–208

    • Great Moderation, 122, 135–136, 138, 155

    • Greek debt structuring, 64

    • Growth imperative, 14, 270. See also Economic growth

    • Growth regressions, 173

    • Health care spending, 201

    • Herding, 76

    • Household debt, 108–109, 114

    • Housing prices, 108, 178–179, 216

    • Hybrid securities, 67–68

    • Impossible Trinity, 221–222

    • Index bond yields, 29

    • Inequality, 25

    • Inflation

      • deflation, 270–273

      • and exchange rate interventions, 159

      • and real debt, 113–114

      • targets, 124, 129, 131–132, 155, 197, 234–235

      • true value of, 23

    • Information goods, 201–202

    • Infrastructure investment, 36, 268, 278

    • Instrument rules, 130

    • Insurance companies, 102

    • Interest rates, 2–3, 238

      • and central banks, 24

      • decline of, 23–25, 29, 31–32, 136, 138, 199, 234, 261

      • and economic growth, 199, 204

      • federal funds rate, 130, 132, 135–136, 139, 240

      • as financial stability tool, 122–123

      • and global economy, 215

      • and government debt, 199

      • and low-risk borrowers, 23–24

      • and monetary policy, 36, 234

      • real, 23, 29–31, 34, 92

      • riskless, 143–146

      • and risk perception, 32–33

      • and savings, 34, 261

      • Wicksellian neutral real rate, 267–268

      • zero lower bound, 123–124, 132, 138, 234, 271

    • Intermediation, 45

    • International monetary and financial system (IMFS), 12–14, 240–241, 245–259

      • characteristics of, 245–246

      • crisis management, 252

      • financial system reforms, 256–257

      • and national resolution policies, 256–257

      • policy coordination, 256, 258–259

      • risk and term premia, 247

      • spillbacks, 13, 245

      • spillover channels, 246–249

      • and U.S. dollar, 247

    • International Monetary Fund (IMF), 263, 281

    • International monetary system (IMS), 240–241

    • International Organization of Securities Commissions, 256

    • International reserves accumulation, 262–263

    • Investment

      • corporate bonds, 74, 178, 236

      • and fiscal policy, 179–180

      • incentives, 267–268

      • infrastructure, 36, 268, 278

      • pro-productive investment policy, 35–37

      • public/private, 205–206

      • and quantitative easing, 235

      • safe assets, 263

      • and savings, 261

    • Israel, 149

    • Japan, 48, 159, 263

      • capital shortfalls, 51

      • deflation, 270–273

      • household savings, 271

      • interest rates, 29

      • and secular stagnation, 34–35

      • systemic risk, 56

    • Korea, 122

    • Leveraging

      • deleveraging, 2, 26, 49

      • excessive, 41

      • leverage cycle, 147

      • leverage ratchet effect, 4, 62–63

      • leverage ratio, 65

      • and systemic risk, 48–50

    • Liquidity

      • corporate/sovereign bond markets, 74

      • global, 247

      • international liquidity provision, 261

      • liquidity illusion, 75

      • liquidity trap, 262

      • risks, 4–5, 74–75, 77–78

      • spillovers, 215

    • Loan-to-value (LTV) mortgages, 95, 114, 122, 144–146, 148–149

    • “The Logic of Monetary Policy,” 129

    • Long-dated yields, 104–105

    • Long-run marginal expected shortfall (LRMES), 45

    • Long-term assets, 264–265

    • Long-term investors, 102

    • Macroeconomic models

      • and debt supercycles, 20

      • and market risks, 24

    • Macroeconomic policy cooperation, 258–259

    • Macroeconomic stability, 230, 249

    • Macroprudential policy, 5–6, 41, 89–98, 287–288

      • aim of, 99

      • and capital controls, 216

      • credible commitment, 94–95

      • and credit cycle, 89–90, 99–100

      • and crisis probability/severity, 114

      • definition, 89–90

      • and discretion, 93–94

      • and equity, 92–93

      • and financial stability, 122, 158, 178, 223

      • first-order distributional choices, 95–96

      • macroprudential tools, 5, 14, 85, 89, 102, 229, 287

      • and monetary policy, 6–7, 90, 96–102, 158–159, 223–224, 229

      • and quantitative easing, 179

      • regime calibration and scope, 91–93

      • regulation, 84–85, 288

      • ring-fencing as, 217

      • and snapback risk, 105

      • systematic, 96–97

      • and systemic risk, 90–92, 94–95

    • Market-making, 83

    • Markets

      • excesses, 83

      • market failures, 165, 202, 205

      • price swings, 74

      • reaching for yield, 82–83

      • risk perception, 24

      • and secular stagnation theory, 24

      • volatility, 74, 78, 265

    • Mexico, 240

    • Monetary policy, 7–9, 121–140, 155–161, 288–289. See also Central banks; Policy rate

      • central banks, 100–101

      • communication, 126–127

      • constrained discretion approach, 138

      • cost-benefit analysis, 107–115, 123

      • and credit surface, 148–149

      • EMEs, 124–125, 221, 224–225

      • and financial stability, 75, 107, 121–124, 158–159, 223, 252, 258–259

      • and fiscal policy, 156, 177, 179–180, 187, 193

      • and floating exchange rates, 214

      • FOMC policy framework, 129–131

      • and IMFS, 246

      • and inflation target, 197

      • instrument rules, 130–131

      • and interest rates, 36

      • international coordination, 160–161

      • and macroprudential policy, 6–7, 90, 96–102, 158–159, 223–224, 229

      • normalizing, 137, 159

      • objectives, 107

      • and price stability, 158, 239

      • and risk, 99–100, 235

      • rules-based, 135–140

      • and spillovers, 159–161

      • targeting rules, 129–131

      • timing of, 181

      • tools, 132

      • unconventional, 123, 127, 157, 159, 225–226, 233–235, 239, 276–280

      • in U.S., 135–136, 159

      • and zero lower bound, 124, 132

    • Money market funds, 69, 178

    • Mutual funds, 78, 178

    • National sovereignty, 216

    • Negative term premium, 104–105

    • New normal, 1–3

    • NICE (noninflationary, consistently expansionary) period, 135–137

    • Office of Financial Research, 85

    • Omnibus Trade Bill of 1988, 213

    • Open-end funds, 78

    • Original sin syndrome, 236

    • Output gap, 171–172

    • Outright Monetary Transactions (OMT), 185

    • Overhanging debt, 33–34, 62, 267, 272

    • Penn Central bankruptcy, 83

    • Pensions, 201

    • Policy rate, 107–110. See also Central banks; Monetary policy

      • benefits of, 109

      • and crisis probability, 109–110, 114

      • and crisis severity, 110–111, 114

      • and DTI ratio, 111

      • and real debt, 110

      • and unemployment, 109, 114

    • Politicians

      • and central banks, 157

      • and system resilience, 94–95

    • Postwar productivity, 269

    • Price stability

      • and central banks, 155–156

      • and monetary policy, 158, 239

    • Price swings, 74–75

    • Productivity, economic, 269

    • Proprietary trading, 83

    • Pro-productive investment policy, 35–37

    • Public choice, 208–209

    • Public debt, 10–11, 167, 170, 188–189, 202–208

      • and fiscal policy, 188

      • investment in, 205–206

      • sustainable, 290

      • and systemic risk, 198–200, 206–208

    • Public finance, 165–167. See also Fiscal policy

    • Public sectors, 198, 200–202, 208

    • QE2/QE3, 82

    • Quadratic loss function, 112–113

    • Quantitative easing (QE), 136–137, 139, 148

      • central banks, 262–263

      • as competitive easing, 236–237, 265

      • EMEs, 239

      • Federal Reserve, 225–226, 238, 247

      • and financial recovery, 179

      • and investment, 235

      • risks of, 177–179, 263–264, 266

      • as risk spread compressor, 263–264, 266

      • and safe assets, 264–266

      • and volatility, 265

    • Recapitalization, 55–56

    • Recession, traditional, 180

    • Redemptions, 77–78, 84

    • Regulation. See Financial regulation

    • Retained profits, 62–63

    • “Rethinking Macro Policy” conference of 2015, 1, 21

    • Riksbank, 108–110, 113–114

    • Ring-fencing, 217, 256–257

    • Risk. See also Systemic risk

      • downside risk, 64–65, 68

      • fiscal, 167–170

      • hiding, 68

      • and international regulation, 257

      • liquidity risks, 4–5, 74–75

      • low interest rates, 36

      • and market volatility, 74

      • and monetary policy, 99–100, 235

      • and policy communication, 126

      • quantitative easing, 177–179, 263–264, 266

      • risk-based measures of capital, 41

      • risk perceptions, 24–25, 32

      • risk-taking channel, 99

      • risk weighting, 64

      • spillover of, 247

    • Rules-based policy, 135–140

    • Russia, 35

    • Safe assets, 261–266

    • Safety trap, 262

    • Savings glut view, 29, 34–36

    • Secular stagnation, 2, 19, 36, 149, 268

      • characteristics of, 21–22

      • and debt overhang, 34

      • and debt supercycle model, 25–26, 29, 31, 33

      • exporting, 34–35

      • and financial crisis of 2008, 23

      • open economy aspects of, 34

      • and safe assets, 261

      • and savings glut, 34–35

      • and stock market peaks, 24

    • Securities regulation, 79, 93

    • Shadow banking, 5, 57, 68–69, 81–86

    • Shareholders, 68

    • Signaling, 126

    • Smithian market, 200, 202

    • Social credit policies, 197

    • South Africa, 35, 124–125

    • Sovereign bonds, 23–24, 74

    • Sovereign debt crisis, 55, 185

    • Sovereignty, 216

    • Spain, 185

    • Spillbacks, 13, 245, 280

    • Spillovers, 138, 241, 280

      • and central banks, 245, 249–250

      • and liquidity, 215

      • and monetary policy, 159–161

      • spillover channels, 246–249

    • SRISK, 3, 45–46

      • aggregate, 47

      • and expected capital shortfall, 45

    • Stability and Growth Pact, 189–191, 193

    • Stabilization. See Financial stability

    • Sterilized intervention, 160

    • Stock markets. See Markets

    • Stress testing, 79, 97

    • Subprime mortgages, 150–151

    • Swap lines, 252

    • Sweden, 108, 113–115, 175

    • Swiss National Bank, 157

    • Switzerland, 50, 102, 122

    • Systemic risk, 3–5, 61

      • and asset managers, 75–78

      • and bailouts, 63–64

      • and capital shortfalls, 43–44

      • characteristics of, 46

      • China, 51–54

      • and financial regulation, 69–70, 73–79

      • and government debt, 198–200, 206–208

      • and leveraging, 48–50

      • liquidity scarcity, 74–75, 77–78

      • and macroprudential policy, 90–92, 94–95

      • measuring, 69, 287

      • and shadow banking, 81–86

      • SRISK, 45–46

    • Tail risks, 24–25

    • Taper tantrum episode, 127, 278

    • Targeting rules, 129–131

    • TARP recapitalization, 55

    • Taxation, 25

      • fiscal policy, 174–175

      • tax base, 207–208

      • tax cuts, 179

    • Tax state, 166

    • Taylor rule, 100–101, 131

    • Technology, 22–23, 26

    • This Time Is Different, 19

    • TLAC (Total Loss Absorbing Capacity) securities, 67

    • Too-big-to-fail issue, 83

    • Traditional recession, 180

    • Treasury bonds, 203, 262

    • True real interest rate, 23

    • Uncertainty, 126–127

    • Unconventional monetary policy (UMP), 157, 159, 233–235, 276–280

      • asset purchases, 123

      • EMEs, 225–226, 239

      • and exchange rates, 277

      • and financial recovery, 127

    • Uncovered interest parity (UIP), 265

    • Undercapitalized firms, 44

    • Unemployment, 109–114

      • and Deflation, 271

      • and policy rate, 109, 114

      • sustainable, 129

    • United Kingdom, 50, 122

      • architectural reforms of 2011, 96

      • banking, 63

      • and financial recovery, 19, 21

    • United States, 238

      • capital shortfalls, 54

      • dollar appreciation and influence, 239, 247

      • financial crisis of 2007–2009, 207

      • and financial recovery, 19, 21, 239

      • financial regulation, 43

      • and foreign currencies, 214

      • government borrowing, 203–204

      • inflation, 235

      • interest rates, 29

      • leverage ratios, 65

      • leveraging, 49–50

      • monetary policy in, 135–136, 159

      • payroll data, 239–240

      • policy communication, 126

      • pro-investment policies, 36

      • rescue package of 2008, 54–55

      • systemic risk, 47–48

      • unemployment, 271

    • Volatility, market, 74, 78, 265

    • Wages, 271

    • Wicksellian neutral real rate, 267–268

    • Women in labor force, 21–22

    • Zero lower bound, 123–124, 132, 138, 234, 271

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