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The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.
This book studies governance capacity and governance legitimacy for societal security and crisis management. It highlights the importance of building organizational capacity by focusing on the coordination of public resources and underscores the relevance of legitimacy by emphasizing the importance of public perceptions, attitudes, and trust vis-à-vis government arrangements for crisis management. The authors explore several cases and identify relevant dimensions concerning performance, capacity and legitimacy across different countries. It is an ideal volume for audiences interested in public administration, public policy, crisis management and security studies.
The COVID-19 pandemic has impacted digital financial inclusion trends across the world in many and complex ways. In developing and emerging contexts, this crisis also holds the potential to propel an unprecedented acceleration in the process of financial digitization and turn out to be a game-changer for digital financial inclusion. The aim of this study is to illustrate the opportunities and risks associated with the surge in uptake and use of digital financial service, providing ideas on how to leverage the paradigm changes affecting the overall approach and perspective towards digital financial services – on the part of various stakeholders – to advance financial inclusion and development. It also seeks to showcase how digital financial services have been used – in both traditional and innovative ways – to mitigate the impact of the COVID-19 crisis on economies and societies, by both public and private actors.
This paper analyzes the impact of fiscal, monetary, and prudential policies during the COVID-19 pandemic on bank lending across a broad sample of countries. We combine a comprehensive announcementlevel dataset of policy actions with bank and firm-level information to analyze the effectiveness of different types of policies. We document that different types of policies were introduced together and hence accounting for policy combinations, or packages, is crucial. Lending grew faster at banks in countries that announced packages combining fiscal, monetary, and prudential measures relative to those that relied on some, but not all, policy dimensions. Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth. The impact was larger among more constrained banks with low equity levels. Large packages combining fiscal, monetary and prudential policies also increased liquidity for bank dependent firms, but did not disproportionately benefit unviable firms.
The global financial crisis (GFC) underscored the need for additional policy tools to safeguard financial stability and ultimately macroeconomic stability. Systemic financial vulnerabilities had developed under a seemingly tranquil macroeconomic surface of low inflation and small output gaps. This challenged the precrisis view that achieving these traditional policy targets was a sufficient condition for macroeconomic stability. Thus, new tools had to be deployed to target specific financial vulnerabilities and to build buffers to cushion adverse aggregate shocks, while allowing traditional policy levers, including monetary and microprudential policies to focus on their traditional roles. Macroprudential policy measures emerged as the solution to this gap. Some of these measures had been used before the GFC (mostly in emerging markets). But it was only after the crisis that they were more widely adopted, and the toolkit expanded. This spurred a growing body of empirical research on the effects and potential shortfalls of these measures, with a further deepening of this knowledge gaining importance as policymakers confront increased financial stability risks in the post-pandemic world. Recognizing that there still is much to learn, this paper takes stock of our expanding understanding about the effects (and side effects) of macroprudential measures by focusing on these questions: What have we learned about the effects of macroprudential policy in containing the buildup of vulnerabilities? What do we know about the effects on economic activity and resilience? How do policy effects vary with conditions and over time? How important are leakages and circumvention? How do the effects on credit depend on other policies?
After a period of rapid economic growth associated with high commodity prices, the region had entered a phase of lackluster performance. Recent developments, including a new oil price shock, and the outbreak of the Covid-19 epidemic will push the region into recession. Many countries are struggling to contain the spread of the Covid-19 epidemic while avoiding a dramatic decline in economic activity. The report analyzes how to think about this tradeoff. It estimates the potential health costs, assesses the effectiveness of diverse containment strategies, and discusses how large the economic cost could be. The current crisis is unprecedented because it combines a fall in global demand, tighter financial conditions and a major supply shock. The response needs to consider how to socialize the losses, how to prevent a collapse of the financial sector, how to protect jobs and livelihoods, and how to manage and divest the assets that will inevitably end up in the hands of the state.
This paper studies whether bank ownership influenced lending behavior during the COVID-19 shock. It finds that, similar to previous episodes of financial distress, foreign banks appear to have played a shock-transmitting role, as there was a sharp slowdown in lending by foreign banks’ affiliates relative to domestic banks. However, given the uniqueness of the COVID-19 shock and the impact of lockdowns on economic activity, foreign banks were found to lend at a higher rate than domestic banks once the stringency of mobility restrictions is accounted for, with their lending portfolio concentrated more in the corporate sector. Results also suggest that the difference in lending rates between foreign and domestic banks could be explained by the heterogeneous effects of policy measures in response to the pandemic. In jurisdictions with more stringent mobility restrictions, policy interventions actually encouraged higher lending by foreign banks. These findings suggest that foreign bank presence may have acted as a shock absorber in jurisdictions where economic activity was most affected by the pandemic.
A distinguished Yale economist and legal scholar’s argument that law, of all things, has the potential to rescue us from the next economic crisis. After the economic crisis of 2008, private-sector spending took nearly a decade to recover. Yair Listokin thinks we can respond more quickly to the next meltdown by reviving and refashioning a policy approach whose proven success is too rarely acknowledged. Harking back to New Deal regulatory agencies, Listokin proposes that we take seriously law’s ability to function as a macroeconomic tool, capable of stimulating demand when needed and relieving demand when it threatens to overheat economies. Listokin makes his case by looking at both positive and cautionary examples, going back to the New Deal and including the Keystone Pipeline, the constitutionally fraught bond-buying program unveiled by the European Central Bank at the nadir of the Eurozone crisis, the ongoing Greek crisis, and the experience of U.S. price controls in the 1970s. History has taught us that law is an unwieldy instrument of macroeconomic policy, but Listokin argues that under certain conditions it offers a vital alternative to the monetary and fiscal policy tools that stretch the legitimacy of technocratic central banks near their breaking point while leaving the rest of us waiting and wallowing.
Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
The Policy Actions for COVID-19 Economic Recovery (PACER) Dialogues were held from June to September 2020 as the coronavirus disease (COVID-19) pandemic accelerated around the world. They shared cutting-edge knowledge and best practices to help countries in Southeast Asia and the People's Republic of China strengthen cooperation to mitigate the devastating effects of COVID-19 and accelerate their economic recovery. This compendium of 13 policy briefs summarizes the discussions, recommendations, and actionable insights from the PACER Dialogues.