Working Paper: NBER ID: w15358
Authors: Andrew K. Rose; Mark M. Spiegel
Abstract: This paper models the causes of the 2008 financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. Our analysis is conducted on a cross-section of 85 countries; we focus on international linkages that may have allowed the crisis to spread across countries. Our model of the cross-country incidence of the crisis combines 2008 changes in real GDP, the stock market, country credit ratings, and the exchange rate. We explore the linkages between these manifestations of the crisis and a number of its possible causes from 2006 and earlier. The causes we consider are both national (such as equity market run-ups that preceded the crisis) and, critically, international financial and real linkages between countries and the epicenter of the crisis. We consider the United States to be the most natural origin of the 2008 crisis, though we also consider six alternative sources of the crisis. A country holding American securities that deteriorate in value is exposed to an American crisis through a financial channel. Similarly, a country which exports to the United States is exposed to an American downturn through a real channel. Despite the fact that we use a wide number of possible causes in a flexible statistical framework, we are unable to find strong evidence that international linkages can be clearly associated with the incidence of the crisis. In particular, countries heavily exposed to either American assets or trade seem to behave little differently than other countries; if anything, countries seem to have benefited slightly from American exposure.
Keywords: 2008 financial crisis; international linkages; MIMIC model; cross-country analysis
JEL Codes: E65; F30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Countries with greater exposure to American financial assets (F65) | Experienced less intense crises (H12) |
| Countries with greater export dependence on the U.S. (F10) | Experienced less severe financial disruptions (F65) |
| International linkages (O19) | Incidence of the 2008 financial crisis (F65) |
| Countries with financial ties to other potential epicenters (F65) | Different crisis intensities (H12) |