Working Paper: CEPR ID: DP7954
Authors: Philip R. Lane; Gian Maria Milesi-Ferretti
Abstract: We examine whether the cross-country incidence and severity of the 2008-2009 global recession is systematically related to pre-crisis macroeconomic and financial factors. We find that the pre-crisis level of development, increases in the ratio of private credit to GDP, current account deficits, and openness to trade are helpful in understanding the intensity of the crisis. International risk sharing did little to shield domestic demand from the country-specific component of output declines, while those countries with large pre-crisis current account deficits saw domestic demand fall by much more than domestic output during the crisis.
Keywords: current account; financial crisis; international financial integration; private credit
JEL Codes: F31; F32; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher pre-crisis levels of development (O19) | more significant declines in domestic demand relative to output during the crisis (F44) |
| greater ratios of private credit to GDP (F65) | sharper declines in output growth (F62) |
| larger current account deficits (F32) | domestic demand fall more than domestic output (E20) |
| pre-crisis financial conditions (G01) | dynamics of consumption and total domestic demand were significantly impacted (D12) |