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The Great Recession: Divide between Integrated and Less Integrated Countries*

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  • Guillermo Hausmann-Guil
  • Eric van Wincoop
  • Gang Zhang

Abstract

No robust relationship has been found between the decline in growth of countries during the Great Recession and their level of trade or financial integration. We confirm the absence of such a monotonic relationship, but document instead a strong discontinuous relationship. Countries whose level of economic integration (trade and finance) was above a certain cutoff saw a much larger drop in growth than less integrated countries, a finding that is robust to a wide variety of controls. The paper argues that standard models based on transmission of exogenous shocks across countries cannot explain these facts. Instead it explains the evidence in the context of a multicountry model with business cycle panics that are endogenously coordinated across countries.

Suggested Citation

  • Guillermo Hausmann-Guil & Eric van Wincoop & Gang Zhang, 2016. "The Great Recession: Divide between Integrated and Less Integrated Countries*," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(1), pages 134-176, May.
  • Handle: RePEc:pal:imfecr:v:64:y:2016:i:1:p:134-176
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    Cited by:

    1. MacDonald, Margaux, 2017. "International capital market frictions and spillovers from quantitative easing," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 135-156.
    2. Endrész, Marianna & Skudelny, Frauke, 2016. "Crisis severity and the international trade network," Working Paper Series 1971, European Central Bank.
    3. Grigoli, Francesco & Herman, Alexander & Swiston, Andrew, 2019. "A crude shock: Explaining the short-run impact of the 2014–16 oil price decline across exporters," Energy Economics, Elsevier, vol. 78(C), pages 481-493.

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