Nigel F. B. Allington

One Market, One Money, One Price? Price Dispersion in the European Union

The introduction of the euro was intended to integrate markets within Europe further, after the implementation of the 1992 Single Market Project. We examine the extent to which this objective has been achieved, by examining the degree of price dispersion between countries in the eurozone, compared to a control group of EU countries outside the eurozone. We also establish the role of exchange rate risk in hampering arbitrage by estimating the euro-effect for sub-groups within eurozone, utilising differences among EU countries in participating in the Exchange Rate Mechanism. Our results, in contrast with previous empirical research, suggest robustly that the euro has had a significant integrating effect.

The failure of the new macroeconomic consensus: from non-ergodicity to the efficient markets hypothesis and back again

The subprime crisis raised some fundamental questions about the usefulness of mainstream economics. This paper considers the shortcomings of the new neoclassical synthesis and the new macroeconomic consensus in analysing the causes and consequences of the crisis. It demonstrates that the major problem was the assumption that the future could be modelled in terms of Knightian risk (as in the rational expectations and efficient markets hypotheses). It is shown that the near collapse of the banking system in the advanced countries was due to a rapid increase in uncertainty. Suggestions are made for the future development of financial macroeconomics using the insights from behavioural economics.

Stock market prices and the conduct of monetary policy under the New Consensus Monetary policy

Beginning with an assessment of new thinking in macroeconomics and monetary theory, this book suggests that many countries have adopted the New Consensus Monetary Policy since the early 1990s in an attempt to reduce inflation to low levels. It goes on to illustrate that the explicit control of the money supply, which was fashionable in the 1970s and 1980s in the UK, US, Europe and elsewhere, was abandoned in favour of monetary rules that focus on interest rate manipulation by the central bank. The objective of these rules is to achieve specific, or a range of, inflation targets.

The Impact of the Subprime Financial Crisis on the Transition and Central Asian Economies: Causes and Consequences

The subprime crisis precipitated the worst recession amongst the OECD countries since the Second World War. Although the value of subprime assets as a proportion of total financial assets was relatively small, the excessive leverage of many US and UK financial institutions, the marked revaluation of the risk associated with securitised assets, together with the collapse in world trade, meant that the 2008–10 crisis was the worst since the Great Depression of 1929. Moreover, contagion effects, especially those initiated through the freezing of the interbank and international financial loans markets, meant that the impact of the crisis extended far beyond those relatively few countries (especially the US and UK) whose banks were holders of the ‘toxic assets’.1 In this chapter the impact of the financial crisis on the European Union Transition Economies (TEs) and the transition Central Asian Economies (CAEs) is examined.2 Particular attention is paid to the financial transmission mechanism that was crucial in determining the impact of the crisis on the TEs.

An Eastern European Perspective on the Recent Financial Crisis and an Examination of Poland’s Exceptionalism

The article reviews the growth of the Eastern European countries after their transition and up to 2007 and then assesses the impact of the US financial crisis on them, making appropriate references to the growth of the South East Asian economies in the 1980s with which they share many features during their convergence process with the Western European economies. The macroeconomic policy responses are outlined and their success measured. The final part of the chapter looks specifically at Poland’s experience on the grounds that it has been an exceptional economy both before and after the crisis for a number of reasons. These include the role of small and medium-sized enterprises, inward FDI, its low export/GDP ratio, tight financial regulations and the pursuit of macroprudential policies.

Lack of Balance, Coordination and Sustainability in Economic Development: China's growth and the 2007 financial crisis

One explanation for the U.S. subprime crisis was the export-led growth strategy of China that allowed the country to build up substantial trade surpluses. This led to a world glut of savings and was responsible for low world interest rates and the cheap credit in, especially, the United States. Although the Asian countries had little exposure to the subprime assets, they did not escape the downturn because their export markets in the advanced countries collapsed. The rebound was rapid, taking a V-shaped path. This paper examines these issues for China and discusses whether it precipitated the 2007 financial crisis through its trade surplus. The evidence suggests that these surpluses and global imbalances, generally, were the handmaiden of the crisis and not the cause.