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Causes of the great recession of 2007–2009: The financial crisis was the symptom not the disease!

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  • Jagannathan, Ravi
  • Kapoor, Mudit
  • Schaumburg, Ernst

Abstract

Globalization has increasingly made it possible for labor in developing countries to augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that this large increase in the developed world’s effective labor supply, triggered by geo-political events and technological innovations, coupled with the inability of existing institutions in the US and developing nations themselves to cope with this shock, set the stage for the great recession. The financial crisis in the US was but the first acute symptom.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 22 (2013)
Issue (Month): 1 ()
Pages: 4-29

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Handle: RePEc:eee:jfinin:v:22:y:2013:i:1:p:4-29

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Web page: http://www.elsevier.com/locate/inca/622875

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Keywords: Globalization; Financial crisis; Global imbalance; Labor supply shock;

References

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  9. Shen Bingxi & Yan Lijuan, 2009. "Development of consumer credit in China," BIS Papers chapters, in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 51-57 Bank for International Settlements.
  10. Edward N. Wolff, 2007. "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze," Economics Working Paper Archive wp_502, Levy Economics Institute.
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  12. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715, Cowles Foundation for Research in Economics, Yale University.
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