Recent Analysis and Research

How Important Are Hedge Funds in a Crisis?

Posted April 14, 2014
Reint Gropp

Economic Letter a Publication of Economic Research

Before the 2007–09 crisis, standard risk measurement methods substantially underestimated the threat to the financial system. One reason was that these methods didn’t account for how closely commercial banks, investment banks, hedge funds, and insurance companies were linked. As financial conditions worsened in one type of institution, the effects spread to others. A new method that more accurately accounts for these spillover effects suggests that hedge funds may have been central in generating systemic risk during the crisis.

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The Euro and the Geography of International Debt Flows

Posted April 8, 2013
Galina Hale and Maurice Obstfeld

Working Papers a Publication of Economic Research

Greater financial integration between core and peripheral EMU members affected both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits. Core countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze international debt flows and provide evidence that after the euro’s introduction, core countries increased borrowing from outside of the EMU and their lending to the periphery.

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