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Prudential Capital Controls
Prudential capital controls are typical ways of prudential regulation that takes the form of capital controls and regulates a country’s capital account inflows. Prudential capital controls aim to mitigate systemic risk, reduce business cycle volatility, increase macroeconomic stability, and enhance social welfare.Jeanne, O., A. Subramanian, and J. Williamson, 2012, Who Needs to Open the Capital Account? Washington, DC: Peterson Institute for International Economics. Distinctions from the Capital Controls in General The term “prudential” distinguishes such typical capital control measures from other general capital controls by emphasizing both the motive of “prudence” and the ex-ante timing. Firstly, the prudence motivation requirement says that such regulation should curb and manage the excessive risk accumulation process with cautious forethoughts for the purpose of preventing an emerging financial crisis and economic collapse. Secondly, the ex-ante timing means that suc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Macroprudential Regulation
Macroprudential regulation is the approach to financial regulation that aims to mitigate risk to the financial system as a whole (or "systemic risk"). In the aftermath of the late-2000s financial crisis, there is a growing consensus among policymakers and economic researchers about the need to re-orient the regulatory framework towards a macroprudential perspective. History As documented by Clement (2010), the term "macroprudential" was first used in the late 1970s in unpublished documents of the Cooke Committee (the precursor of the Basel Committee on Banking Supervision) and the Bank of England. But only in the early 2000s—after two decades of recurrent financial crises in industrial and, most often, emerging market countries—did the macroprudential approach to the regulatory and supervisory framework become increasingly promoted, especially by authorities of the Bank for International Settlements. A wider agreement on its relevance has been reached as a result of the la ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Net Worth
Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net worth can also be conveniently expressed as non-financial assets plus net financial assets. It can apply to companies, individuals, governments or economic sectors such as the sector of financial corporations or to entire countries. By entity Calculation Net worth is a combination of financial assets and liabilities. The financial assets that contribute to net worth are homes, vehicles, various types of bank accounts, money market accounts, and stocks and bonds. The liabilities are financial obligations such as loans, mortgage, accounts payable (AP) that deplete resources. Companies Net worth in business is also referred to as equity. It is generally based on the value of all assets and liabilities at the carrying value which is t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Accelerator
The financial accelerator in macroeconomics is the process by which adverse shocks to the economy may be amplified by worsening financial market conditions. More broadly, adverse conditions in the real economy and in financial markets propagate the financial and macroeconomic downturn. Financial accelerator mechanism The link between the real economy and financial markets stems from firms’ need for external finance to engage in physical investment opportunities. Firms’ ability to borrow depends essentially on the market value of their net worth. The reason for this is asymmetric information between lenders and borrowers. Lenders are likely to have little information about the reliability of any given borrower. As such, they usually require borrowers to set forth their ability to repay, often in the form of collateralized assets. It follows that a fall in asset prices deteriorates the balance sheets of the firms and their net worth. The resulting deterioration of their abilit ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Amplification Feedback Loop
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics), consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in Financial system, financial systems at various scopes, thus the field can be roughly divided into Personal finance, personal, Corporate finance, corporate, and public finance. In a financial system, assets are bought, sold, or traded as Financial instrument, financial instruments, such as Currency, currencies, Loan, loans, Bond (finance), bonds, Share (finance), shares, Stock, stocks, Option (finance), options, Futures contract, futures, etc. Assets can also be Bank, banked, Investment, invested, and Insurance, insured to maximize value and minimize loss. In practice, Financial risk, risks are alway ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Fragility
Financial fragility is the vulnerability of a financial system to a financial crisis. Franklin Allen and Douglas Gale define financial fragility as the degree to which "...small shocks have disproportionately large effects." Roger Lagunoff and Stacey Schreft write, "In macroeconomics, the term "financial fragility" is used...to refer to a financial system's susceptibility to large-scale financial crises caused by small, routine economic shocks." Sources of financial fragility Why does the financial system exhibit fragility in the first place? Why do banks choose to take on a capital structure that makes them vulnerable to financial crises? There are two views of financial fragility which correspond to two views on the origins of financial crises. According to the fundamental equilibrium or business cycle view, financial crises arise from the poor fundamentals of the economy, which make it vulnerable during a time of duress such as a recession. According to the self-fulfilling or sun ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Market Imperfections
Capital market imperfections are limitations that reduce the range of financial contracts that can be signed or honored. These restrictions are more common in capital markets. There are three basic reasons for that: First, lenders do not have full information about the borrower, whether they have the capacity to pay back their debt and/or whether they are willing to pay (Information asymmetry, asymmetric information). Secondly, the lender needs to trust the borrower to commit and to pay back his/her debt or there needs to be a third party to enforce the contract as it is more difficult to enforce contracts ex post (limited commitment). Finally, since the exchange does not happen at the same time, there is always room for renegotiation. Perfect capital markets In perfect capital market case, assuming complete markets, perfect rationality of agents and under full information, the equilibrium occurs where the interest rates clear the market, with the supply of funds equal to the dema ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Information Asymmetry
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient, causing market failure in the worst case. Examples of this problem are adverse selection, moral hazard, and monopolies of knowledge. A common way to visualise information asymmetry is with a scale with one side being the seller and the other the buyer. When the seller has more or better information the transaction will more likely occur in the seller's favour ("the balance of power has shifted to the seller"). An example of this could be when a used car is sold, the seller is likely to have a much better understanding of the car's condition and hence its market value than the buyer, who can only estimate the market value based on the information provided by the seller and their ow ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Incomplete Markets
In economics, incomplete markets are markets in which there does not exist an Arrow–Debreu security for every possible state of nature. In contrast with complete markets, this shortage of securities will likely restrict individuals from transferring the desired level of wealth among states. An Arrow security purchased or sold at date ''t'' is a contract promising to deliver one unit of income in one of the possible contingencies which can occur at date ''t'' + 1. If at each date-event there exists a complete set of such contracts, one for each contingency that can occur at the following date, individuals will trade these contracts in order to insure against future risks, targeting a desirable and budget feasible level of consumption in each state (i.e. consumption smoothing). In most set ups when these contracts are not available, optimal risk sharing between agents will not be possible. For this scenario, agents (homeowners, workers, firms, investors, etc.) will lack the instru ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Pecuniary Externality
A pecuniary externality occurs when the actions of an economic agent cause an increase or decrease in market prices. For example, an influx of city-dwellers buying second homes in a rural area can drive up house prices, making it difficult for young people in the area to buy a house. The externality operates through prices rather than through real resource effects. This is in contrast with technological or real externalities that have a direct resource effect on a third party. For example, pollution from a factory directly harms the environment. As with real externalities, pecuniary externalities can be either positive (favorable, as when consumers face a lower price) or negative (unfavorable, as when they face a higher price). The distinction between pecuniary and technological externalities was originally introduced by Jacob Viner, who did not use the term ''externalities'' explicitly but distinguished between ''economies'' (positive externalities) and ''diseconomies'' (negat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
How Human Psychology Drives The Economy, And Why It Matters For Global Capitalism
How may refer to: * How (greeting), a word used in some misrepresentations of Native American/First Nations speech * How, an interrogative word in English grammar Art and entertainment Literature * ''How'' (book), a 2007 book by Dov Seidman * ''HOW'' (magazine), a magazine for graphic designers * H.O.W. Journal, an American art and literary journal Music * "How", a song by The Cranberries from ''Everybody Else Is Doing It, So Why Can't We?'' * "How", a song by Maroon 5 from ''Hands All Over'' * "How", a song by Regina Spektor from ''What We Saw from the Cheap Seats'' * "How", a song by Daughter from ''Not to Disappear'' * "How?" (song), by John Lennon Other media * HOW (graffiti artist), Raoul Perre, New York graffiti muralist * ''How'' (TV series), a British children's television show * ''How'' (video game), a platform game People * How (surname) * HOW (graffiti artist), Raoul Perre, New York graffiti muralist Places * How, Cumbria, England * How, Wiscon ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Animal Spirits (Keynes)
Animal spirits is a term used by John Maynard Keynes in his 1936 book ''The General Theory of Employment, Interest and Money'' to describe the instincts, proclivities and emotions that ostensibly influence and guide human behavior, and which can be measured in terms of, for example, consumer confidence. Use by Keynes The original passage by Keynes reads: Earlier uses Philosophy and social science The notion of animal spirits has been described by René Descartes, Isaac Newton, and other scientists as how the notion of the vitality of the body is used. In one of his letters about light, Newton wrote that animated spirits very easily live in "the brain, nerves, and muscles, may become a convenient vessel to hold so subtil a spirit." These spirits, as described by Newton, are animated spirits of an ethereal nature, relating to life in the body. Later it became a concept that acquired a psychological content but was always thought of in connection with the life processes of th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
