What can we Learn from Historical Economic and Financial Crises?

These notes form a short extract from the forthcoming monograph by John Crean and Frank Milne, The Anatomy of Systemic Risk, (2017a); and a shorter working paper, The Foundations of Systemic Risk (2017b).

By Frank Milne, Queen’s University

There are many historical financial crises that resemble the recent crisis of 2007-9. Crean and Milne provide a summary of various banking crises, discuss their similarities, provide a theory integrating their observations and examine the implications for Risk Management systems and financial regulation.

Here we will restrict our discussion to two major banking crises that should be of interest for Canadians. There are clear parallels with current Canadian banking and regulatory risks. We will draw some conclusions that are supported by the Crean-Milne framework.

The first example is the Australian Banking Crisis of the 1890s, and the second example is the Texas Banking Crisis of 1980-89.Read More »

How financial illiteracy affects mortgage rates, and how we can help

Queen’s PhD candidate and JDI Student Fellow, Jenny Watt, discusses research presented at the Joint Bank of Canada-John Deutsch Institute Workshop on Financial Intermediation and Regulation. 

By Jenny Watt, JDI Fellow

Andrea Pozzi of the Einaudi Institute for Economics and Finance recently presented research on the consequences of financial illiteracy on mortgage rates. Using data containing 90% of Italian mortgages, he and his co-authors show that not only do consumers who are susceptible to bad advice from banks pay higher rates—their presence in the market causes higher rates for all consumers.Read More »

How we decided on 2% fiscal stimulus during the Great Recession

 

StephenSnudden
Stephen Snudden

JDI Student Fellow Stephen Snudden offers his insights into the internationally coordinated effort to combat the Great Recession following the collapse of Lehman Brothers in 2008. At the time he was a Research Assistant at the Bank of Canada and has also served as a Project Officer for the International Monetary Fund.  He is currently a PhD Candidate and in the Department of Economics at Queen’s University. 

 

By Stephen Snudden, Queen’s University

A 2% fiscal stimuli to combat the Great Recession

It was October 7th 2008. Lehman Brothers had just collapsed in mid-September and seemingly taken the global economy with it. Markets were in hysteria. We needed to figure out what to do quickly.Read More »

Hartwick’s Rule continues to influence sustainable development after 40 years

This year, the John Deutsch Institute and the Economics Department at Queen’s University are hosting a conference to mark the 40th anniversary of John Hartwick’s famous rule, which was published in the American Economic Review in 1977. The conference, “Investing Resource Rents: A look at resource economics after 40 years of Hartwick’s Rule,” will take place at Queen’s University, October 20 and 21, 2017. Click on the link for more information. This article provides an introduction to the rule. 

By Nora Ottenhof, econ major, Queen’s University

JohnHartwick
Prof. John Hartwick

Arguably one of the greatest accomplishments to come out of the Queen’s University Economics Department has been John M. Hartwick’s 1977 publication, “Intergenerational Equity and Investing Rents from Exhaustible Resources,” known today as the Hartwick Rule. Since its conception nearly forty years ago, the Hartwick Rule has gone on to become a pillar of sustainability economics, forever changing the way we think about the concept of sustainability. The Hartwick Rule has influenced everything from environmental sciences to public policy, and will undoubtedly continue to have a profound impact moving forward.Read More »

How far out of whack are house prices? A ranking of Canadian cities

By Allen Head & Huw Lloyd-Ellis, Queen’s University

Building on the research behind a recent article in the Canadian Journal of Economics (Head and Lloyd-Ellis, 2016), we develop an economic model of housing markets and use it to rank Canadian cities based on the percentage difference between predictions and real world prices. This gives us the following excess valuations by year.

Table: Excess Valuations (% deviation from 1984-1998 average)

  2011 2012 2013 2014 2015 2016
1. Vancouver, BC 39 33 32 32 39 48
2. Oshawa, ON 1 11 8 12 23 39
3. St. John’s, NL 52 63 60 57 44 37
4. Toronto, ON 4 12 10 12 18 32
5. St Catharines-Niagara, ON 4 9 6 6 12 25
6. Sherbrooke, QB 24 30 29 19 29 18
7. Hamilton, ON 4 17 13 13 13 16
8. Regina, SK 20 27 22 11 13 15
9. Victoria, BC 19 17 10 7 7 13
10. Calgary, AB 18 15 9 3 2 10
11. Halifax, NS 22 27 20 14 12 9
12. Winnipeg, MB 20 26 18 13 11 9
13. Windsor, ON -3 0 0 0 0 8
14. Gatineau, QB 8 14 11 7 7 6
15. Thunder Bay, ON -6 1 6 9 8 6
16. Montreal, QB 6 15 9 7 5 5
17. Saskatoon, SK 9 13 7 2 8 5
18. Ottawa, ON 10 14 10 8 5 3
19. Quebec, QB 9 16 13 6 4 2
20. Kitchener-Waterloo, ON -2 2 -4 -5 -4 1
21. Saguenay, QB 9 20 15 6 0 -2
22. Edmonton, AB 5 6 -4 -9 -8 -4
23. Greater Sudbury, ON 2 7 5 2 -5 -4
24. Kingston, ON -5 -2 -8 -11 -10 -10
25. Trois-Rivieres, QB 0 2 -1 -3 -8 -10
26. London, ON -12 -10 -12 -13 -12 -12
27. Saint John, NB 0 0 -1 -9 -13 -13
Average 10 14 10 7 7 9

Read More »

What the “Terminator” Tells Us about Blockchain and Privacy

By Thorsten Koeppl, Department of Economics

The Blockchain revolution is here. And, in many ways, it is like the Internet was when it started 20 years ago. We did not know how we would be affected, but we all had a feeling that this is going to be big. After watching a movie classic — the “Terminator” — I realized that three questions stand out when gauging the potential of Blockchain and Distributed Ledger Technology more broadly.

  1. How big are the cost savings?
  2. Is there a need for privacy?
  3. Can we rely on independent, safe and smart communication between IT systems?

Continue reading at the C.D. Howe Institute

The NYTs is wrong. More people should walk up escalators

By Christopher Cotton, Queen’s University

Yesterday, The New York Times published an article explaining why it is would be more efficient if the social norm involved everyone standing when riding escalators. The current norm in many countries involve those on the right standing, while leaving the left side of the escalators for walkers. The NYTs argues that we’d be better off as a society if both sides were used by standers alone.Read More »

Research: Oil Exporters Should NOT Price Level Target

By Stephen Snudden, JDI Student Fellow, Queen’s University

Monetary policy may focus on price level targeting (PLT) or inflation targeting (IT). The distinction between the two frameworks is that under IT, the central bank does not respond to temporary deviation of prices from trend. Bygones are bygones. In contrast, with PLT, past inflation performance matters and past deviations must be undone to restore the price level to the target path.Read More »

The likely impact of Trudeau’s cash-for-access reforms

By Christopher Cotton, Queen’s University

Justin Trudeau’s government is set to introduce changes to the rules governing political fundraising activities. The prime minister has faced heat for the so-called “cash-for-access” fundraisers it has held featuring the prime minister and cabinet ministers. A news report suggested the new legislation will require fundraising events to take place at public locations, rather than private homes or clubs; be announced ahead of time and summarized in reports following the events; and be open to the media. Democratic Institutions Minister Karina Gould has said any changes will revolve around making the fundraisers more transparent.

So, what is the likely impact of these reforms, what do they accomplish, and what else could be done?

Read the column at IRPP’s Policy Options
photo: shutterstock

 

On the Benefits of Government Intervention in the Vancouver Housing Market

By Andrea Craig, JDI Student Fellow, Queen’s University

Housing prices, housing affordability, and the impact of offshore money on residential real estate in Vancouver are not new topics. However, policies to address these issues are new. Beginning last August, foreign purchases of residential real estate in Metro Vancouver are subject to an additional 15 percent property transfer tax. In addition, last month, the provincial government announced repayable down-payment assistance for first-time homebuyers in B.C.

As consumers we associate higher tax rates with higher prices. In the usual case of a tax imposed on all consumers, this is correct. However, in the case of the foreign property transfer tax, prices will decrease (or appreciate less). Here is a stylized analysis showing how the foreign property transfer tax decreases housing prices.Read More »