We show both the positive and negative aspects of some key public policies, and how to increase welfare in crisis times and prevent the likelihood of financial crises, e.g.:
I. Policies such as direct lending from the state can substantially alleviate negative real effects during crisis times, but also show how it can be set up more optimally this public lending.
II. Macroprudential policies, especially targeted on borrowers, can be more effective in reducing the likelihood of financial crises, while macroprudential policies targeted on banks can alleviate the crunches, after crises start.
III. The financial system circumvents some tightening of policies, the so-called regulatory arbitrage, both in European stress testing or the US rise of shadow banks, and therefore it reduces the effects on the economy (not reducing enough the excessive risk-taking in the financial system that creates financial crises.
IV. Financial crises have long-term effects by different channels, for example by reducing the supply of credit to real economy, but also by other non-economic channels like political radicalization. Therefore, public policies via macroprudential and monetary policies but also subsidized lending are crucial to mitigate the effects.
V. Financial shocks (caused by too much debt and leverage) are transmitted internationally but also there are international spillovers of US and Western Europe monetary policies to emerging markets and also to Eastern and Central Europe.
VI. Some positive policies for credit such as expansive monetary policy can increase income, wealth and consumption inequality, despite that they may be crucial to fight periods of low economic activity and inflation. Inequality effects stem from softer monetary policy via debt on housing value, savings, wealth, consumption. Labor income does not compensate these effects.
Overview of the results
• Several top academic publications in finance, management and economics, and various working papers to be revised and resubmit in top-field journals.
• These works present novel methodologies, e.g. on how to analyze macroprudential policies and real effects, how to estimate firm-level effects of bank credit supply effects, on how to analyze household inequality for wealth (housing, stocks, debt, savings) or income (labor income).
• A summary of the paper “Financial Crises and Political Radicalization: How Failing Banks Paved Hitler’s Path to Power” showing the persistence of credit shocks (banking crisis 1931 in Germany) via political radicalization (Hitler to power), is number 16 in the most read articles in the history of VoxEU since 2007 (VoxEU from CEPR has over 1 million pageviews per month). This paper was also summarized in one full page in the printed version of The Economist.
• In particular, papers in the frontier are often invited to the most important conferences and seminars in the field, which are the most impactful.
Dissemination activities in a nutshell
• Presentations at seminars, conferences and other academic events: +80
• Principal Investigator’s post views on Linkedin since May 2020: 121.983
• Twitter’s project account (since April 2020): Followers 1057 · Impressions 235.5 K · Average engagement rate: 1.8% · Link clicks 1453 · Retweets 215 · Likes 1291
• Blogs columns, both VoxEU and Nada es Gratis.
• Project’s website page views (February 2020-Dec. 2021): 3359
• The project’s scientific output has also been disseminated via a website (
https://www.upf.edu/web/debt-persistence-financial-shocks(öffnet in neuem Fenster)) and more than 15 academic/research websites.
