Economy & markets after the financial crisis What have we learned and where are we heading? Economics, UiO, March 7 2011 . Harald Magnus Andreassen [email protected] Today. On markets and our ability for forecast the future ’After’ the Financial Crisis What happened, and why? The world economy
This should not have been possible!
A Tobins q, calculated from the balance sheet
And many warned: OECD, IMF, Shiller, BIS…
Many more now
28 y, 17 countr.113 ”crises”
A banking crises every 10th year
We do not need CDOs and structured products. Just human beings
Banking crises and capital mobility
Rogoff & Reinhart
Current accounts, USD 1997 and 2008
The fiscal response
Reinhart & Reinhart
Reinhart & Reinhart
1 Bad times
2 Soft landing
3 ’Happy’ days
The flip side of the coin: An unprecedented increase in public sector deficit – because the current account is quite stable short to medium term for rich countries in aggregate
But the problems are not the same everywhere
Still: Debt is not out of control yet (everywhere…)
Initial fiscal position vs. adjustment
Adjustment % of GDP
Underlying budget balance before consolidation
85 episodes, 24 countries sice 1978. No one defaulted
A Greek debt restructuring not unlikely
Irland is now asking for lower interst rates on EMU loans
Usually following banking crises
The way out
Cash flows are strengthening sharply!Funding is more available. Plans are revised upwards
US: Employment will come back quickly – profits less so
Europe: Profits will come back quickly – employment not
A Norwegian exceptionalism?
It did not end up in a credit crisis, this time
And it is not totally unfair
Can any central bank rely solely on developments in money and credit to come to its policy decisions? The answer is clearly “no”.
Can any central bank afford to ignore the information in monetary developments in formulating monetary policy? Again, the answer is “no”.
Otmar Issing, ECB, FT 15. des 2005
Learn more about financial markets
Integrate financial stability into macro models/policy
.. And a lot of lessons for the financial regulators!
"I can calculate the movement of the stars, but NOT the madness of men."- Sir Isaac Newton, after losing a fortune (£20,000) in the bubble
Norwegian interest rates madness of men."
Renteøkning i april er så godt som sikkert. Trichet brukte uttrykket ”strong vigliance” og sa at renteøkning i april er ”possible but not certain” (fordi ECB aldri binder seg på forhånd).
Forrige uke: ECB dro EUR rett opp. USD sklir ned
Positivt: Renter ute, vekst og dermed økt inflasjon
Negativt: Sterk NOK og høyt kredittpåslag i NIBOR
Norwegian FX interest rates in Norway