The Financial Crisis. Where did the crisis start?

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Presentation transcript:

The Financial Crisis

Where did the crisis start?

From Reality To Theory (1)  Financial Crisis and your Macroeconomics knowledge: PIL; Unemployment; Inflation; Interest Rates; Investment; Supply and Demand of Money; Keynesian Multiplier; IS and LM; Fiscal and Monetary Policy; International Trade.

The Financial Crisis

The consequences for the private sector

Global GDP Contraction

From Reality to Theory… WWhich link to your course in macroeconomics? PIL = C+ I + G + X

The impact on the macroeconomics indicators (1).

The impact on the macroeconomics indicators (2).

The Collapse in World Trade.

The Causes of the Financial Crisis  Deregulation in the Financial Sector: Debt/Capital ratio: from 1:15 to 1:40; Decrease the weight of mortgages in the capital formation of banks; Off-balance sheet activity (Basel II)  securitisation in the IB!  “American Dream”: zero equity mortgages

Macroeconomic Policies?  Fiscal Policy;  Monetary Policy;  Trade Policy;  International Coordination.

Macroeconomic Policies  Fiscal Policy measures: Stabilize the financial sector; Support demand and improve confidence; BUT risk of increasing public deficit! Keynesian Multiplier = 1  but it may decrease;  Inversely correlated to openness!  Monetary Policy: Accommodative policy (decrease i –not in developing countries!);  Cross-Border Coordination/Consistency in the financial sector policies to avoid distortions.  Avoid Protectionism (WHY?)

References  OECD (2009): “ The OECD Economic Outlook Interim Report”.  IMF (2009): ”Global Economic Policies and Prospects”, G20, London March 2009.