04 February 2013

The Icelandic banking collapse: was the optimal policy path chosen?

The Central Bank of Iceland announces the seminar “The Icelandic banking collapse: was the optimal policy path chosen?”, which will be held on Friday 8 February 2013 at 15:00 hrs. in the Sölvhóll conference room at the Central Bank of Iceland.

Speakers will be Thorsteinn Thorgeirsson and Paul van den Noord. The presentations will be in English

The banking collapse in Iceland in October 2008 was one of the largest in modern financial history. Iceland was one of the first countries to be affected by a financial crisis in 2006, but also the first to begin recovering from the crash. The policies of the authorities, with assistance from the International Monetary Fund and neighbouring countries, contained the damage and prepared the ground for recovery.

In this symposium, Thorsteinn Thorgeirsson, advisor to the Governor of the Central Bank of Iceland, and Paul van den Noord, advisor to the Chief Economist and Deputy Secretary General of the OECD, will present the results of research on what the outcome could have been if the authorities had adopted other policies to deal with the collapse.

They consider four alternative scenarios on the basis of two complementary macroeconomic models to estimate the impact on public finances, economic growth, unemployment and other macroeconomic variables over the period 2009-2025. In particular, the scenarios considered are if the authorities had decided to:
1) adopt a more procyclical fiscal policy,
2) allow the ISK exchange rate to drop without imposing capital controls,
3) pay the interest expense on the initial Icesave agreement, or
4) to rescue the Icelandic banks, as Ireland did.

The results will be compared to the actual path taken.