We examine financial literacy in Finland and its connection with various financial outcomes using novel survey data collected in 2023. While the overall Finnish financial literacy level is about average among the OECD countries, there is significant heterogeneity within the population. Women have lower financial literacy than men. The young and the old have lower financial literacy than respondents in their prime working age, and entrepreneurs have higher financial literacy than other groups. Financial literacy is also correlated with higher educational levels. We further study the relationship between financial literacy and a number of economic outcome variables. We find financial literacy to be negatively related to coping with a major expense, facing an income shock, and with perceived over-indebtedness. However, we do not find a statistically significant relationship between financial literacy and retirement planning in Finland.

This paper examines financial literacy in the United States, using the 2021 National Financial Capability Study data. A large volume of papers have demonstrated the importance of financial knowledge and documented the low level of financial literacy in America. Using recent data collected during an unusual time when inflation was rising and the country was in the midst of the COVID-19 pandemic, we show that the knowledge of fundamental financial concepts continues to be low in the US, especially among people who are young, less educated, female, or not employed. Our analysis also highlights people’s lack of inflation knowledge and identifies the subgroups that are particularly vulnerable. Finally, we examine how financial literacy affects financial well-being and behaviors. Responses to the Big Three financial literacy questions are linked to important financial behaviors and outcomes, including planning for retirement, financial resilience, and not carrying too much debt.

In this paper, we examine financial literacy and financial resilience in Italy. We show that financial literacy is particularly low among the young, women, and the less educated. We also highlight regional differences in financial knowledge, with individuals in Southern Italy performing worse. We find that the lack of financial literacy increases the probability of being unable to face financial shocks and leads to an overaccumulation of debt. Hence, our results support the hypothesis that financial literacy can be considered an enabling factor for financial resilience.

The power of finance ensured that, other than for an initial fiscal push to salvage financial institutions, monetary measures in the form of quantitative easing, involving the infusion of large volumes of cheap liquidity, were the principal response to the 2008 global financial crisis. The effects of the generalised and prolonged dependence on such measures have been a substantial increase in vulnerability, at the centre of which is a huge build-up of private – especially corporate – debt, and unwarranted and unsustainable asset price inflation in both developed country and ‘emerging economy’ markets. A consequence of these processes is a massive increase in income and wealth inequality across the world, which limits the level of effective demand and growth.

This paper explores how different credit market and banking regulations affect business fluctuations. Capital adequacy- and reserve requirements are analyzed for their effect on the risk of severe downturns. We develop an agent-based macroeconomic model in which financial contagion is transmitted through balance sheets in an endogenous firm-bank network, which incorporates firm bankruptcy and heterogeneity among banks to capture the fact that contagion effects are bank specific. Using concepts from the empirical literature to identify amplitude and duration of recessions and expansions, we show that more stringent liquidity regulations are best to dampen output fluctuations and prevent severe downturns. Under such regulations, both leverage along expansions and amplitude of recessions become smaller. More stringent capital requirements induce larger output fluctuations and lead to deeper, more fragile recessions. This indicates that the capital adequacy requirement is procyclical and therefore not advisable as a measure to prevent financial contagion.

The paper presents an agent-based model to study the possible effects of different fiscal and monetary policies in the context of debt deflation. We introduce a modified Taylor rule that includes the financial position of firms as a target. Monte Carlo simulations provide a representation of the complex feedback effects generated by the interaction among the different transmission channels of monetary policy. The model also reproduces the evidence of low inflation during stock market booms and shows how it can lead to overinvestment and destabilize the system. The paper also investigates the possible reasons behind this stylized fact by testing different behavioral rules for the central bank. We find that, in a context of sticky prices and volatile expectations, endogenous credit creation can be identified as the main source of the divergent dynamics of prices in the real and financial sectors.

A rapidly growing empirical literature is studying the causes and consequences of bank fragility in contemporary economies. The paper reviews the two basic methodologies adopted in cross-country empirical studies, the signals approach and the multivariate probability model, and their application to study the determinants of banking crises. The use of these models to provide early warnings for crises is also reviewed, as are studies of the economic effects of banking crises and of the policies to forestall them. The paper concludes by identifying directions for future research.