Financial crisis glossary
Asset markets refer to classes of assets – houses, equities, bonds – each of which is traded with similar regulations and behaviour.
Debt-deflation is the process by which, in a period of falling prices, interest on debt takes an increasing share of declining income and so reduces the amount of money available for consumption.
The Gold Standard fixed exchange rates by the amount of gold in their currencies. As a result, it was not possible to vary exchange rates to solve a balance of payments (the difference between payments into and out of a country) deficit, and instead costs were driven down and competitiveness restored by deflationary policies.
The International Monetary Fund is an organisation created in 1944 which now concentrates on structural reform of developing economies and resolving crises caused by debt.
Macroeconomics refers to the behaviour and performance of the economy as a whole, by considering general economic factors such as the price level, productivity and interest rates.
Monetary policy uses the supply of money and interest rates to influence economic activity. This is in contrast to fiscal policy which depends on changes in taxation or government spending.
Mutualisation of debt entails moving from a government bond that is the responsibility of a single member of the eurozone to make it the joint responsibility of all members.
Petrodollars are the dollars received by oil producers. Particularly after the increases in prices during the oil shocks of 1973 and 1979, and again after 2003, their earnings – the petrodollars – led to the growth of international financial flows through commercial banks.
Quantitative easing is the process by which a central bank purchases government bonds and other financial assets from private financial institutions. The institutions selling assets now have more money and the cost of borrowing is reduced. Individuals and businesses can borrow more, so boosting spending and increasing employment – though it is also possible that, when this process was employed, money went into buying equities, so boosting the gains of richer people.
Reflation refers to the use of policies that are employed to boost demand and increase the level of economic activity by increasing the money supply or reducing taxes, and so breaking the debt-deflation cycle.
Secular stagnation describes a long period of no or very slow growth in contrast to a short-term cyclical downturn. It assumes that the economy is trapped by a lack of demand and fails to achieve full employment.
Sovereign debt is the debt of national governments, with interest and repayment secured by taxation. If debt was too high, the country might default. This became a risk in 2010, above all in Greece.