Current Issues
CFCM regularly produces short briefing notes on issues related to consumer and corporate credit and finance. These briefing notes and non-technical summaries of the research undertaken in the centre and contain links to academic and industry papers written by CFCM research fellows cited therein. They are suitable for non-specialists as well as those interested in gaining an overview of recent development in consumer and corporate credit markets.
CFCM researchers maintain regular contact with the financial media in Europe and the United States and have written articles for industry publications and the financial press including the Financial Times.
Current Issues Briefing Notes
Kenneth N. Kuttner, January 2009
Recent events have reminded us that central banks do more than just make set interest rates: from time to time they also have to function as the lender of last resort for the financial system, providing “liquidity” to keep a financial crisis from turning into a collapse. The Fed has been serving as such a lender of last resort since late last year, ratcheting up its involvement after the March Bear Stearns crisis, and vastly expanding that involvement after the Lehman was forced to fold. The result has been a massive extension of credit to the private sector, with the Fed assuming powers and risks no one had imagined just a few months ago. We are in the midst of a monetary experiment without modern precedent.
Paul Mizen, November 2008
Firms in the UK and the US have had healthy balance sheets, with plenty of cash; besides their borrowing has not decreased during 2007-08. This will not last. This article gives several reasons why firms will find credit harder to obtain and more costly in 2009. We can expect conditions to improve as government support for banks eases funding pressures, but this will be over the medium term.
Paul Mizen and Gert Peersman, November 2008
To achieve its primary objective of price stability, the European Central Bank (ECB) uses a strategy based on two "pillars". One of these pillars, referred to as the monetary analysis, exploits the long-run link between money and inflation.In particular, to signal its commitment to price stability and to provide a benchmark for the assessment of monetary developments, the ECB announces a reference value for the growth rate of the broad monetary aggregate M3. This prominent role assigned to money has been subject to intense criticism from the very beginning, as discussed in this current issues paper.
Paul Mizen, October 2008
The media have referred to recent events in financial markets as a ‘credit crunch’ from as early as August 2007. This article argues that we faced a financial crisis in 2007, not a credit crunch. A credit crunch involves a decline in credit controlling for the stage of the business cycle, which was only apparent from 2008, when credit to households and firms began to contract.
Paul Mizen, October 2008
This article examines the root causes of the 'credit crunch'. It has been commonly asserted that the root of the problem lies with the sub prime mortgage market in the United States but this is not the full story. Subprime was the trigger for the crisis, but mispricing of risk was widespread, and any number of other high yield asset classes could have provided the trigger
Paul Mizen, May 2007
Is household debt ‘unsustainable’? This article shows debt to income ratios have increased, and while much of this is due to secured borrowing for house purchase, unsecured borrowing has also risen. Overindebtedness is mostly a problem for low income households but assessment of financial distress indicates some combinations of shocks may create problems for other types of borrowers.
Where did the sub-prime crisis begin and what exactly is a subprime mortgage? This article provides some definitions, and documents their growth; it also explains why the relatively the small proportion of subprime mortgages exerted a large influence on financial markets, and how this influence was transmitted to other countries.
Sarah Bridges, June 2004
Growth in the demand for credit has led to greater use of credit scoring, to decide whether or not to grant credit to a particular applicant. This article explains how credit scoring works and what are the pitfalls in the approach when profiles are based on characteristics of ‘good’ borrowers, that may not reflect changing conditions over time or measure unobservable characteristics.
Richard Disney, November 2003
Household saving relative to income has shown a decline for some time in major industrial economies, Japan excepted. Is this a concern? This article provides an assessment of saving by asking why households do not run assets to zero over their lifetime as models predict, but hold considerable saving in housing assets,, human capital and pension entitlements. It evaluates the behaviour of active saving, which is volatile, and ‘saving’ that results from housing and pension asset appreciation.
Richard Disney, April 2002
This article argues talk of a ‘pension timebomb’ is overblown, but EU countries should recognize several pension problems – the implications of public pension funding for macroeconomic stability, the debate over public funded pensions versus private provision and the potential for tax policy to distort long-term household saving decisions.
Paul Mizen, February 2002
Mortgage and other consumer debt is large in the UK and US, but the borrowing for the purchase of property is small in southern European countries This article argues financial regulations, habits and customs, variations in age profiles and other differences in demography and financial development explain the differences.
For more policy focused economics articles see The Economists' Voice