Working Paper: NBER ID: w19840
Authors: Anusha Chari; Peter Blair Henry
Abstract: Paths into the Asian Crisis of 1997-98 and the recent global financial crisis were similar, but the roads out could not be more different. Common wisdom has it that on impact Asia endured fiscal austerity imposed by the IMF whereas the IMF recommended stimulus in the case of the advanced nations at the epicenter of the crisis in 2008-09. While the IMF did recommend different policies to begin with, the fiscal adjustment in Asia was far more modest than is commonly known and the switch from stimulus to austerity in Europe was quite abrupt. The difference in fiscal stance helps explain the difference in the post-crisis paths of output and employment in the two regions.
Keywords: fiscal policy; economic recovery; Asian financial crisis; global financial crisis; austerity
JEL Codes: E62; E65; F4; F68; O11; O57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Change in fiscal policy stance from stimulus to austerity in Europe (E62) | Decline in real GDP growth (O49) |
| Fiscal austerity in East Asia during the crisis (O23) | Contractionary impact (E62) |
| Fiscal austerity in East Asia (E62) | No significant effect on real GDP growth in precrisis and postcrisis periods (F62) |
| Size of the fiscal multiplier varies depending on the state of the economy (E62) | Larger multipliers observed during recessions (E32) |