Transcript No Slide Title

Mr. Massimo M Beber
Fellow in Economics
Sidney Sussex College
Cambridge CB2 3HU
[email protected]
www.cus.cam.ac.uk/~mb65/mpes
European Economics
Lecture 6
THE FINANCIAL SYSTEM
(Provisional Version: last updated 16th November 2006)
M.Phil. in Contemporary European Studies 2006/7
©Massimo M Beber 2006
Lecture Outline
• What does the Financial System Do?
• Real and Financial Integration
• The Single Market in Capital and Financial
Services
• After the Financial Services Action Plan
(Gerschenkron vs Bagehot)
The empirical agenda
• How does finance affect growth?
• What features of the financial structure have the
most significant impact on growth?
• Specifically, what is the relationship between
finance, and structural change and economic
progress?
THE FINANCE-GROWTH NEXUS - STYLIZED
SCENARIOS
Full Employment
Technological
frontier
Trend Stationary
ln(Y)
Difference
Stationary
Vicious Circle
Beta- and SigmaConvergence
Time
TRADE-OFFS IN THE INTERNATIONAL
FINANCIAL ARCHITECTURE
C
’
B
C’’, C
A,D
Free Mobility of Capital
A:
B:
C:
C’, C’’:
D:
the Gold Standard as an “anchor” to the price level
the Bretton Woods compromise
the German model, Mrs Thatcher’s monetarist experiment
the Keynesians’ Last Hurrah between autarchy and stagflation
back to the anchor: EMU, currency boards, dollarisation...
FIN. DEVELOPMENT INDICATORS: BEFORE… (1980)
Source: Rajan and Zingales (2003), Table 1
FIN. DEVELOPMENT INDICATORS: … AND AFTER (2000)
Source: Rajan and Zingales (2003), Table 2
Source: Danthine, Giavazzi and von Thadden (2000)
EUROZONE FINANCIAL GAP (% GDP)
(capital expenditure – blue and internal funds – red)
Source: Bank of Belgium Financial Stability Review 2003, Chart 1.
USA FINANCIAL GAP (% GDP)
(capital expenditure – blue and internal funds – red)
EUROZONE EQUITY FUNDING (% GDP)
(debt financing – blue and equity financing – red)
USA EQUITY FUNDING (% GDP)
(debt financing – blue and equity financing – red)
THE EU’S SHARE OF THE GLOBAL DERIVATIVES MARKETS
Source: Rajan and Zingales (2003), Figure 2
THE NATIONAL LEGACY IN THE EU LOLR
Source: European Central Bank Annual Report (1999), pp. 98-99.
A EU LLR: CON(DE?)STRUCTIVE AMBIGUITY
Source: European Central Bank Press Release (10th March 2003), para 3-4.
TOWARDS INTEGRATED FINANCIAL SUPERVISION:
THE “LAMFALUSSY FRAMEWORK”
Source: Committee of European Banking Supervisors Annual Report 2004.
EUROPEAN FINANCIAL REGULATION: BETWEEN EMH AND FIH
Source: Committee of European Banking Supervisors Annual Report 2004.
THE EMBRYONIC STRUCTURE OF EU FINANCIAL REGULATION
Source: Committee of European Banking Supervisors Annual Report 2004.
Conclusions
• The financial structure is crucial to household
welfare, business investment, corporate control, and
efficient public finances
• Governance of the financial system implies different
policies under EMH and FIH;
• EU policy in this area reflects an attempt to balance
competition and prudential concerns
• Centralized governance (regulation, LLR) is likely
to increase over time