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EC2601 Course Work Exam

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Essay

To ascertain the banking and monetary system in various nations there has been main influence of banking authorities to bring the recession and financial crisis. Moreover, in the present study there will be discussion based on Federal bank in US and the banking policies implied by them. Moreover, there has been adequate analysis through various operation such as GDP rates, Inflation etc. Thus, in order to improve the financial conditions there are various filed which are needed to be improved by the government (Travis, Harris and Larson, 2017). There has been various impacts of such as huge level of monetary circulation in the market. Consumers were having interest in investing the money over long term investment plans as the loans and interest rates were comparatively lower. The banks allowed lower rates as they wanted to meet the challenges and competition in the market. The impacts as well as influences of financial crisis were direct and indirect over such economies.

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As per analysing the GDP rates during the period 2000 to 2017 there has been huge variations. Thus, during the crisis there has been downfall of economy which are impacted over the rise in the prices of commodities (Aaronson and et.al., 2018). Moreover, the main reason behind the crisis was excessive sub-prime mortgage has been facilitated in the market with lower returns. Thus, it has negatively impacted over the governmental reserves (Ruhl and Willis, 2017). Banks become bankrupt as there were no money left. It also affecting the increment of rises of commodities which has bound the consumers in not making expenses which results in demolish of huge numbers of small businesses (Bernanke, banking crashes andrecessions, 2013). Therefore, to analyse the GDP and inflation impacts over the rate of return of banking sector the below listed table will be helpful in analysing the impacts of financial crisis. Moreover, in relation with analysing the impacts of Global financial crisis there has been huge negative fall of the GDP rate of the country. Thus, due to such impacts over economy as it affects the small scale businesses. Thus, it has effected over reduction in the economic growth and the circulation of money in the market. There has been reduction in the consumer confidence index numbers which emphasis over the negative trade practices (Delis, Hasan and Mylonidis, 2017). The governmental policies to overcome with the impacts of GFC in the nation there can be reduction in the operational activities. Thus, at the time of great depression there has been increment in the mortgage level. Moreover, people started taking loan and making investments into the real estate and properties which were having the negative impacts over the increment in the level of loans and mortgaged were grant to the consumers. There has been various impacts of such as huge level of monetary circulation in the market. Consumers were having interest in investing the money over long term investment plans as the loans and interest rates were comparatively lower. The banks allowed lower rates as they wanted to meet the challenges and competition in the market, Thus, due to lower interest rates there will be less collection of money and at the time of global financial crisis impacts over the national economy, there is no money left with the banks (Buyl, Boone and Wade, 2017). There has been huge reduction in the governmental reserves and funds which has eventually lowers down the revenue of citizens. There has been negative impacts over the growth of economy. Thus, the per capita GDP has the negative outcomes which indicates that during such period the small or medium size organisations has negative impacts of the global financial crisis (Laux and Rauter, 2017). This in turn reduces the economic level as well as living standard of the people.

It has been observed here that the speculative boom was extended due to derivatives in the global financial crisis which was not in at the time of great depression. The impacts of great depression was originated from United state there has been major fall in the stock value of various industries. Therefore, During such a phase there has been reduction in the prices of the share values of the firm which indicates the downfall of the economy (Bai, Krishnamurthy and Weymuller, 2018). There are various entities which were bankrupt and have no capital amount to operate their business activities. Moreover, it has affected the banks with not money to grant them from better operations in the time. Similarly, the global financial crisis has impacted over the nation as per the poor banking policies of the government. To meet the competition the private and public sector of financial authorities has facilitated the loans in the market at lower returns which indicates economic crisis (Irani and Meisenzahl, 2017). During such period there are various issues arises such as inflation, fall of GDP rates, unemployment, fall in national income as well as economic rates. The liquidity and current ability of nations has been challenged through such variations in the economy.

The banks in United States has started making the excessive Sub prime loans to the consumers at very lower rate of return. Thus, the motive of these financial institution is to have better efficiency as to meet the challenges in the market. It has impacted over various economies such as developing and developed (Aaronson and et.al., 2018). The impacts as well as influences of financial crisis were direct and indirect. Moreover, due to such regards many of the small business has demolished as there are no money left wit the bank which will be helpful to them as per growth and operations. Thus, such impacts in bringing the unemployment in the national environment (Ruhl and Willis, 2017). Additionally, there are various other nations which were affected by the impacts of Global Financial crisis.

On the basis of impacts of global financial crisis the records of federal rate of return which has impacted over interest rate of various nations such as China, USA, Australia, Europe and Japan. Thus, it has negatively impacted the exchange rates, monetary transactions as well as currency rate of the economies. The level of longer terms as well as short term debts were increased (Travis, Harris and Larson, 2017). The inflation took place on which various necessary commodities has risen in their prices such as Petroleum products and food articles. In relation with the behaviour of Federal banks it can be said that there has been huge impacts over the monetary market of economics moreover, there are negative fall of GDP during the financial crisis which were comparatively less than -4% in many of the nations (Delis, Hasan and Mylonidis, 2017). It was a drastic changes and the unfavourable outcomes as the per capita income and living standard of the people has been reduced here. The domestic economy were at their challenging phase which ascertains that there has been reduction in the operational activities.

During the period of crisis there has been reduction in the GDP rate of various developing as well as developed nations (Laux and Rauter, 2017). Therefore, in 2008 it was -0.3% while in 2009 it was -3.1%. Thus, due to such impacts there are various obstacles incurred in the operations which in turn affecting the business of local and domestic industries (Bai, Krishnamurthy and Weymuller, 2018). The negative fall of the GDP rates which were indicative for the government to make improvement in the banking, Monetary as well as economic policies. The level of imports were higher than compared to the exports. It has incurred due to no micro level of economic policies were effective to build the economic standard of the citizens (Irani and Meisenzahl, 2017). Later on it took time in again stabilised at GDP for the period of 2010 to 13 which was 1.95%. Thus, the rate was not that adequate appropriate as there is need to have appropriate changes in the governmental policies to improve the financial environment of nations (Aaronson and et.al., 2018). The impacts of global financial crisis has made reduction in the economic viability as well as improper management of the financial activities in the economy. The invitation of the inflation has incurred the big monetary losses to the government as well as to the small scale enterprises (Travis, Harris and Larson, 2017). Due to impacts of the global financial crisis there has been negative impacts over the consumer confidence level. Thus, it impacts over their buying behaviour as the rise in the prices took place due to inflation which impacts consumers to save their money.

Therefore, this has impacted over the reduction in the money circulations as well as reduction in the demands for the particular goods. Similarly, it has influenced the sales or operational aspects of the businesses and that lead them to higher losses. Therefore, in the year 2008 Federal debts has leads the debts held by public more than twice which is $5.8 trillion to $12.2 trillion in 2013. These outcomes have been derived from as per the past impact and the historical lower rates (Buyl, Boone and Wade, 2017). Therefore, it took year to a nation or economy in overcoming with the financial losses and crisis. The impact of such economic crisis was very huge as it has threatened the national economy (Bai, Krishnamurthy and Weymuller, 2018). Moreover, the impacts of such crisis can be seen as per the GDP rate, Potential GDP, FFR and inflationary gap during the period has been analysed such as:

Frequency: Quarterly

                 

observation_date

PCECTPI_PC1

GDPC1

GDPPOT

π*

r*

Output gap (% of potential)

Inflation gap

Actual Federal Fund Rate (FFR)

Taylor rule predicted FFR

2000-01-01

3.3

-62.5

60.0

2.00%

2.00%

-2.0416666667

0.1

-1

-2.0

2000-04-01

3.3

136.4

390.0

2.00%

2.00%

-0.650349641

0.1

-0.0951115834

-0.4

2000-07-01

3.5

-90.2

25.0

2.00%

2.00%

-4.6078432

0.1

-0.0378323108

-2.3

2000-10-01

3.4

-67.6

115.0

2.00%

2.00%

-1.5878750435

0.1

0.0072090628

-0.7

2001-01-01

3.4

-191.7

-55.0

2.00%

2.00%

2.4848485455

0.1

0.1573301549

1.5

2001-04-01

3.3

-73.1

105.0

2.00%

2.00%

-1.6959706667

0.1

0.2927580894

-0.5

2001-07-01

2.7

-360.0

-65.0

2.00%

2.00%

4.5384615385

0.1

0.2373689228

2.6

2001-10-01

1.9

-52.2

55.0

2.00%

2.00%

-1.9486165455

0.0

0.6390625

-0.3

2002-01-01

1.2

-436.4

185.0

2.00%

2.00%

-3.3587223784

0.0

0.2307692308

-1.4

2002-04-01

1.3

4.8

110.0

2.00%

2.00%

-0.95671

0.0

-0.0095238095

-0.5

2002-07-01

1.6

-253.8

100.0

2.00%

2.00%

-3.5384615

0.0

0.0057471264

-1.7

2002-10-01

2.3

-72.7

15.0

2.00%

2.00%

-5.8484846667

0.0

0.2055427252

-2.7

2003-01-01

3.0

-43.2

105.0

2.00%

2.00%

-1.411840381

0.1

0.1546666667

-0.5

2003-04-01

2.0

72.7

190.0

2.00%

2.00%

-0.6172248947

0.0

0.0026737968

-0.3

2003-07-01

2.2

245.0

345.0

2.00%

2.00%

-0.2898550725

0.0

0.2262295082

0.1

2003-10-01

2.0

1500.0

240.0

2.00%

2.00%

5.25

0.0

0.0200668896

2.7

2004-01-01

1.8

9.5

115.0

2.00%

2.00%

-0.9171842609

0.0

-0.0066445183

-0.4

2004-04-01

2.8

-21.1

150.0

2.00%

2.00%

-1.1403508667

0.1

-0.0066006601

-0.5

2004-07-01

2.7

-46.4

185.0

2.00%

2.00%

-1.2506854595

0.1

-0.2953488372

-0.9

2004-10-01

3.4

-27.1

175.0

2.00%

2.00%

-1.1547618857

0.1

-0.264957265

-0.8

2005-01-01

3.0

87.0

215.0

2.00%

2.00%

-0.5955510698

0.1

-0.2105263158

-0.5

2005-04-01

2.9

-30.0

105.0

2.00%

2.00%

-1.2857142857

0.1

-0.160815402

-0.8

2005-07-01

3.8

-8.1

170.0

2.00%

2.00%

-1.0476947647

0.1

-0.1493256262

-0.6

2005-10-01

3.7

-34.3

115.0

2.00%

2.00%

-1.2981366087

0.1

-0.1306532663

-0.7

2006-01-01

3.7

14.0

245.0

2.00%

2.00%

-0.9430469796

0.1

-0.1069558714

-0.5

2006-04-01

3.9

-42.9

60.0

2.00%

2.00%

-1.7142856667

0.1

-0.0917119565

-0.9

2006-07-01

3.3

-88.2

20.0

2.00%

2.00%

-5.4117645

0.1

-0.0648030496

-2.7

2006-10-01

2.0

39.1

160.0

2.00%

2.00%

-0.7554348125

0.0

0

-0.3

2007-01-01

2.4

-95.9

10.0

2.00%

2.00%

-10.591837

0.0

-0.0019023462

-5.3

2007-04-01

2.7

158.3

155.0

2.00%

2.00%

0.0215053548

0.1

0.0012698413

0.1

2007-07-01

2.3

575.0

135.0

2.00%

2.00%

3.2592592593

0.0

0.0348226018

1.7

2007-10-01

4.0

-56.3

70.0

2.00%

2.00%

-1.8035714286

0.1

0.1282431431

-0.7

2008-01-01

4.1

-1450.0

-135.0

2.00%

2.00%

9.7407407407

0.1

0.4155299056

5.3

2008-04-01

4.3

-35.5

100.0

2.00%

2.00%

-1.3548387

0.1

0.5223642173

-0.1

2008-07-01

5.3

-170.4

-95.0

2.00%

2.00%

0.7933723158

0.1

0.0756013746

0.5

2008-10-01

1.6

-685.7

-410.0

2.00%

2.00%

0.672473878

0.0

2.8289473684

3.2

2009-01-01

-0.2

100.0

-270.0

2.00%

2.00%

-1.3703703704

0.0

1.7636363636

1.1

2009-04-01

-0.9

-125.0

-25.0

2.00%

2.00%

4

0.0

0.0185185185

2.0

2009-07-01

-1.6

-168.4

65.0

2.00%

2.00%

-3.5910930769

0.0

0.1489361702

-1.6

2009-10-01

1.5

-147.6

195.0

2.00%

2.00%

-1.7567229744

0.0

0.3055555556

-0.5

2010-01-01

2.4

-131.5

85.0

2.00%

2.00%

-2.5468409412

0.0

-0.1

-1.3

2010-04-01

1.8

-880.0

195.0

2.00%

2.00%

-5.5128205128

0.0

-0.3103448276

-3.0

2010-07-01

1.2

107.7

135.0

2.00%

2.00%

-0.2022791852

0.0

0.0357142857

0.0

2010-10-01

1.2

-35.9

125.0

2.00%

2.00%

-1.28717952

0.0

0

-0.6

2011-01-01

2.1

-188.2

-75.0

2.00%

2.00%

1.5098038667

0.0

0.1914893617

1.0

2011-04-01

3.3

-25.6

145.0

2.00%

2.00%

-1.1768346897

0.1

0.6785714286

0.1

2011-07-01

3.7

-70.4

40.0

2.00%

2.00%

-2.75925925

0.1

0.12

-1.2

2011-10-01

3.3

84.0

230.0

2.00%

2.00%

-0.6347826087

0.1

0.1363636364

-0.1

2012-01-01

2.8

-280.0

135.0

2.00%

2.00%

-3.0740740741

0.1

-0.2903225806

-1.8

2012-04-01

1.9

-34.5

95.0

2.00%

2.00%

-1.3629764211

0.0

-0.3260869565

-1.0

2012-07-01

1.7

-37.5

25.0

2.00%

2.00%

-2.5

0.0

0.0697674419

-1.1

2012-10-01

1.9

-97.8

5.0

2.00%

2.00%

-20.565218

0.0

-0.1041666667

-10.3

2013-01-01

1.7

3.7

140.0

2.00%

2.00%

-0.973545

0.0

0.1162790698

-0.3

2013-04-01

1.4

-57.9

40.0

2.00%

2.00%

-2.4473685

0.0

0.2285714286

-1.0

2013-07-01

1.5

520.0

155.0

2.00%

2.00%

2.3548387097

0.0

0.4

1.6

2013-10-01

1.2

3900.0

200.0

2.00%

2.00%

18.5

0.0

-0.0384615385

9.2

2014-01-01

1.4

-132.1

-45.0

2.00%

2.00%

1.936508

0.0

0.1818181818

1.2

2014-04-01

2.1

475.0

230.0

2.00%

2.00%

1.0652173913

0.0

-0.2142857143

0.4

2014-07-01

1.8

67.7

260.0

2.00%

2.00%

-0.7394540769

0.0

0.037037037

-0.3

2014-10-01

1.2

-50.0

100.0

2.00%

2.00%

-1.5

0.0

-0.1

-0.8

2015-01-01

-0.1

-455.6

160.0

2.00%

2.00%

-3.84722225

0.0

-0.0909090909

-2.0

2015-04-01

0.0

-41.3

135.0

2.00%

2.00%

-1.3059581481

0.0

-0.1081081081

-0.7

2015-07-01

0.2

-69.2

80.0

2.00%

2.00%

-1.865384625

0.0

-0.0975609756

-1.0

2015-10-01

0.4

-75.0

25.0

2.00%

2.00%

-4

0.0

-0.1458333333

-2.1

2016-01-01

1.1

-81.3

30.0

2.00%

2.00%

-3.7083333333

0.0

-0.5555555556

-2.4

2016-04-01

1.1

-18.5

110.0

2.00%

2.00%

-1.1683501818

0.0

-0.0357142857

-0.6

2016-07-01

1.1

75.0

140.0

2.00%

2.00%

-0.4642857143

0.0

-0.0588235294

-0.3

On the basis of above mentioned findings as well as analysis of various economic terms such as GDP rates, Inflation rates it can be said that there are various requirements which were result into having the most accurate information about the governmental loopholes (Travis, Harris and Larson, 2017). There has been negative fall of the economy during the period of Global financial crisis. The government at that time has played the compensatory role in designing the plans and policies to overcome with such financial drawbacks. Therefore, they have plans for improving the private sector such as agriculture, small scale enterprises etc. to improve the economic growth of the nation (Delis, Hasan and Mylonidis, 2017). Therefore, as per the above analysis it can be said that there has been increment in the federal rate of return after the period of global financial crisis.

However, in relation with making the adequate changes into economy there are various operations which will be helpful more improving the economic level. There are need to have increment in the planning capacity of government in various economies such as improving the plans for the short terms as well as long term debts. There are various operation which will be helpful for the government in meeting the economic targets as if they make increment in the domestic production (Irani and Meisenzahl, 2017). It emphasis over improving the imports in the organisation which will be helpful in meeting the governmental targets. There is need to make balance between the current crisis of the nation. The rates over the central bank charges money to the state banks must be appropriate as it will again generate the governmental reserves (Bai, Krishnamurthy and Weymuller, 2018). It will eventually impact over the consumers to build up confidence level as to have adequate increment in the growth of economy.

There has been increment in the level of employment facilities in the economy as the labour market has reduced the rates due to improper jobs and recruiters were available to them. Moreover, the government was focused over presenting the appropriate job opportunities in the market so the living standard of people will be improved (Aaronson and et.al., 2018). The efforts have reflected the positive outcomes. The cause created by the Global financial crisis has impacted over the reduction in the prices of labour market. Thus, there are large numbers of graduates were in the market looking for the adequate jobs but the improper number of organisation has challenges the unemployment in the environment (Buyl, Boone and Wade, 2017). It has been assumed that there will be increment in the rate of GDP per year for 3% of rise in the rates. Therefore, due to such wants and requirements of the government there is need to have adequate increment in the plans and policies for private firm.

However, after analysing the pre and post impacts of global financial crisis as well as planning of the federal banks in the economy has been analysed. Therefore, there can be adequate increment in the demand and supply of the commodities which will be helpful in balancing the inflating gap (Irani and Meisenzahl, 2017). Moreover, the governmental plans and policies will have positive outcomes ads per stabilising the exchange rate of the economy. On the other side, there are need to have plans for increment of domestic production in country which will be helpful in rising the balance of trade and balance of payments (Travis, Harris and Larson, 2017). Thus, It impacts over reducing the level of exports made in the nation in comparison with managing the appropriate exports. The citizens will have to depend over the domestic resources instead of external resources. Therefore, here the development will play the main role in improving the economic conditions.

References

  • Aaronson, D. and et.al., 2018. Industry Dynamics and the Minimum Wage: A Putty‐Clay Approach. International Economic Review. 59(1). pp.51-84.
  • Bai, J., Krishnamurthy, A. and Weymuller, C. H., 2018. Measuring liquidity mismatch in the banking sector. The Journal of Finance. 73(1). pp.51-93.
  • Barth, M. E. and et.al., 2017. Bank earnings and regulatory capital management using available for sale securities. Review of Accounting Studies. 22(4). pp.1761-1792.
  • Buyl, T., Boone, C. and Wade, J. B., 2017. CEO narcissism, risk-taking, and resilience: An empirical analysis in US commercial banks. Journal of Management, p.0149206317699521.
  • Carvalho, C., Ferrero, A. and Nechio, F., 2017. Demographic Transition and Low US Interest Rates. FRBSF Economic Letter. 27.
  • Delis, M. D., Hasan, I. and Mylonidis, N., 2017. The Risk‐Taking Channel of Monetary Policy in the US: Evidence from Corporate Loan Data. Journal of Money, Credit and Banking. 49(1).- pp.187-213.
  • Irani, R. M. and Meisenzahl, R. R., 2017. Loan sales and bank liquidity management: Evidence from a us credit register. The Review of Financial Studies. 30(10). pp.3455-3501.
  • Laux, C. and Rauter, T., 2017. Procyclicality of us bank leverage. Journal of Accounting Research. 55(2). pp.237-273.
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