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The main aim of the World Economy and Finance Research Programme is to advance knowledge of the inter-relationships between financial markets and economic growth and stability. Twenty six research groups in top universities throughout the United Kingdom are carrying out this work. The Programme is fully funded by the independent Economics and Social Research Council (ESRC) and runs until 2009
Forthcoming Events
24-25 April 2008
International Monetary Fund and World Economy and Finance Conference on International Macro-Finance
IMF Headquarters, Washington DC.
The conference will provide a forum to present recent theoretical and empirical research narrowing the gap between 'open-economy macro' and 'finance' approaches to international financial issues. Full details can be found here
2-3 May 2008
Monetary Policy in Developed and Developing Economies
London School of Economics,
Centre for Economic Performance
Contact: Gianluca Benigno
Details may be found here
17-18 July 2008
Workshop on International Finance University of Warwick
Topics will include: financial contagion, sovereign debt, political economy and behavioural economics
Contact: Lei Zhang, project page here
3-5 September 2008
Centre for Dynamic Macroeconomic Analysis, University of St Andrews Annual Conference
Details will appear here
Contact: Professor Charles Nolan
10-12 September 2008
Money Macro Finance Research Group Annual Conference
Birkbeck College, London
WEF website and MMF website
17-18 September 2008
Regulatory Regime Change in Financial Markets: The Case of Sarbanes-Oxley Conference
Queens University Belfast
Details here (WEF)
and here (QUB)
Contact: Dr Patrick McWilliams
September 2008
Conference: "The Politics of Pro-Poor Economic Strategies"
Washington DC
Contact Paul Mosely
University of Sheffield
World Economy and Finance newsletter
"WELCOME to the fourth e-newsletter from the Economic and Social Research Council's World Economy and Finance Programme. This newsletter sketches some key developments. I hope you find it useful and informative.
More information about the Programme - information on all the projects, publications, discussion papers, conferences, and other events - can be found on our website.
If you have received this newsletter in error or do not wish to receive further issues, then please reply to the email with the word `unsubscribe` in the subject heading."
Prof John Driffill, Programme Director
The Inadequacy of Capital Requirements and the Dynamics of Market Regulation
Regulating the banking industry and financial markets remains a necessary but difficult task, as Martin Wolf argued in the Financial Times (16th April 2008). Article here The Basel II capital accord is meant to be an improvement over Basel I. But is it? Charles Goodhart (London School of Economics) and Hyun Song Shin (Princeton) have argued that the new regime is more likely to increase instability than to decrease it. Their research project is summarised here. Hyun Song Shin's web page may be found here. The recent crisis emanating from the US sub-prime mortgage market and the securitization of mortgages has dealt Basel II a severe blow. Stijn Claessens, Geoffrey Underhill, and Xiaoke Zhang, in a recent article in The World Economy (March 2008, vol. 31 no 3 pp. 313-344. Journal web site here) attack it from a different perspective.
Their core argument is that Basel II was formulated in a closed policy community: regulators and supervisors from the G10 and their private sector interlocutors. The outcome is that Basel II advances the interests of powerful market players with less regard for smaller, less sophisticated banks, especially those from developing and emerging-market economies. How will it affect developing countries? The authors state that "The new standards are likely to exacerbate fluctuations in the costs and availability of external financing for many developing countries." So not only does Basel II fail to make the international financial system as a whole safer and sounder, but also it fails to provide benefits for the most vulnerable members of the global financial system.
Going beyond the banking industry and focussing on corporate governance, Justin O'Brien's recent edited volume, Private Equity, Corporate Governance, and the Dynamics of Capital Market Regulation (London: Imperial College Press, 2007)analyses the deficiencies of the current regulatory paradigm, and "advances an integrity-based approach to regulation within a realist framework." Justin O'Brien's project is summarised here.
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Project Profile Home Ownership, Housing Collateral and Aggregate Fluctuations House prices in the United States have fallen by around 10 percent from their recent peak, and may fall some way further before they stabilise. The IMF recently calculated US house prices as being roughly 12 percent above their fundamental value. Prices have now begun to fall in the UK, where the IMF estimates that they exceed fundamentals by roughly 29 percent. They may have a lot further to fall. What effects will such falls have on consumer spending, investment, and the economy as a whole? More generally, how are house prices affected by the state of the economy, and how do they affect it, over the course of the business cycle? How much do housing booms and busts increase the volatility of the real economy? Alex Michaelides of the London School of Economics, Nobuhiro Kiyotaki (Princeton University) and Kalin Nikolov (Bank of England), are studying these questions. They look at the interaction between housing prices, national income, and household behaviour over the course of people's lifetimes. A recent paper, 'Winners and losers in Housing Markets' contains some early results. In their model economy, land and capital are used to build residential and commercial structures. They find that housing prices react to expected future productivity growth and the world interest rate, causing major redistributions of wealth between buyers and sellers of houses, particularly if land makes up a large part of the value of structures. But what are the effects of financial liberalization? When loan-to-value ratios rise, households start to buy earlier in the life-cycle, but take longer to move up the housing ladder. More relaxed collateral constraints lead to higher home-ownership rates, and make people better off, because fewer households suffer from the utility loss of renting. But relaxing the collateral constraint has limited effects on prices and aggregate resource allocation during the transition to a new steady state, because most of the adjustment is achieved through the switch from houses being rented to being owned. |