Gavyn Davies: What caused the equity crash?

The extreme turbulence of the financial markets in August resulted in a temporary rise in the VIX measure of US equity market volatility to levels that have been exceeded on only a few occasions since 2008. In order to reach a judgment on if it is over, we need to form a view on what caused the crisis in the first place. The obvious answer is “China”. The response of the Chinese authorities to the stock market bubble, and the manner in which the devaluation of the renminbi was handled, raised questions about policy credibility that added to ongoing concerns about hard landing risk in the economy.. Was China the only factor involved? New econometric work published by my Fulcrum ((VIEW LINK) suggest that the perception of an adverse monetary policy shock may have been important in explaining the financial turbulence, in which case the Fed needs to tread extremely carefully as it approaches lift-off for US rates. Read full blog at (VIEW LINK)