The book features contributions from prominent scholars in the field and researchers at the International Monetary Fund (IMF).
[alert type=”e.g. warning, danger, success, info” title=””]Financial Crises: Causes,
Consequences and Policy Responses Stijn Claessens, Ahyan Kose, Luc Laeven and Fabian Valencia
Publisher: International
Monetary Fund and Academic Foundation
Page: 635; Price: Rs 1495[/alert]
The International Monetary Fund (IMF) established by the United Nations has today a membership of 188 nations. Without doubt, the IMF contributed in a big way to enhance monetary cooperation on a global scale, ensure financial stability, encourage international trade and promote high levels of employment and sustainable growth and effectively eliminate world poverty.
One of the salutary and laudable results of the IMF is its contribution through its monthly and periodical journals and other publications to disseminate accurate information on every aspect of the global economy. There is with the IMF an impressive gathering of economists, statisticians and distinguished scholars in several disciplines who ladle out critical analyses of critical situations. The contribution of the IMF Staff in interpreting world economic events is of inestimable value. The book under review is one more proof of the IMF,s contribution to the world of knowledge.
As all are aware, the economic Tsunami of 2007-09 led to a disastrous financial crisis resulting in tectonic changes in the world economy. We witnessed unequalled disruptions in assets and credit markets, extraordinary wealth erosion and huge bankruptcies. Like cancer the economic body has been afflicted and even now is struggling to survive the scars created by the dreaded disease. To tackle the disease, understand its ramifications and embark on a curative process, we must first fully comprehend the malaise. This is exactly what this book is about. It provides a broad analysis of the background, the grip of the ailment and the steps taken to banish it’s evil effects. A good part of the book is devoted to the study of the aftermath.
This book provides the distilled wisdom of 28 IMF authors and a number of distinguished outsiders. It covers all aspects of financial crises, prediction, prevention, management and close-up. What is provided is a comprehensive analysis of most of the issues thrown up by financial crises. It analyses at length banking crisis, sovereign debt. We are provided at once a microeconomic and a macroeconomic perspective of banking crises.
This book covers a wide range of crises, including banking, balance of payments and sovereign debt crises. It reviews the typical patterns that precede crisis and considers lessons on their antecedents, analyses the evolution of crises and examines various policy responses—macroeconomic policies and the restructuring of banks, households, financial institutions and sovereigns and studies their aftermath, including short and medium term growth impacts and financial and fiscal consequences.
Part One of the book analyses the different types of crises and establishes a comprehensive database. An exhaustive review of the literature of financial crises is provided—which includes asset price bubbles, credit booms, building up of leverage and large capital inflows.
The next part reviews broad lessons on crisis prevention and management. Furnished are elegant analysis of the lessons learnt about the warning signals and the management of such episodes. A convincing case is made that the 2007—09 crisis which began with the US sub-prime mortgage market is far from over.
Part Three discusses the short-term economic crises recessions and recoveries. Recessions associated with financial crises tend to be unusually severe and their recoveries are typically slow. Strong counter-cyclical policy action, combined with the restoration of confidence in the financial sector could help move the recovery forward.
The Fourth part analyses the medium term effects of financial crisis on economic growth. We have an analysis of medium term performance following 88 banking crises since 1970 across a wide range of economies as well as the behaviour of world output following major financial crisis going back to the nineteenth century.
Part Five reviews the use of policy measures to prevent booms, mitigate busts and avoid crises. Four economists study the effectiveness of macro-economic and macro-prudential policies in reducing the risks associated with real estate credit booms.
The last part deals with the policy measures for mitigating the adverse impact of crises and examine how to restructure banks, households and sovereign debts. After an analysis that compares policy changes in recent and past crises the economists argue that the overall assets restructuring and balance sheet repair of the institutions during the 2007—09 crisis did not advance as rapidly as they should have and as a result moral hazard may have increased. They call for more aggressive asset restructuring.
The volume is replete with tables, charts, diagrams and rich reference material. This book is of great use for researchers, academicians and students of economics.
P.P. Ramachandran
