Weathering the financial crisis: good policy or good luck?
AbstractThe macroeconomic performance of individual countries varied markedly during the 2007-09 global financial crisis. While China's growth never dipped below 6% and Australia's worst quarter was no growth, the economies of Japan, Mexico and the United Kingdom suffered annualised GDP contractions of 5-10% per quarter for five to seven quarters in a row. We exploit this cross-country variation to examine whether a country's macroeconomic performance over this period was the result of pre-crisis policy decisions or just good luck. The answer is a bit of both. Better-performing economies featured a better-capitalised banking sector, lower loan-to-deposit ratios, a current account surplus, high foreign exchange reserves and low levels and growth rates of private sector credit-to-GDP. In other words, sound policy decisions and institutions reduced their vulnerability to the financial crisis. But these economies also featured a low level of financial openness and less exposure to US creditors, suggesting that good luck played a part.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 351.
Length: 28 pages
Date of creation: Aug 2011
Date of revision:
financial crisis; principal components;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-15 (All new papers)
- NEP-BAN-2011-08-15 (Banking)
- NEP-CBA-2011-08-15 (Central Banking)
- NEP-FDG-2011-08-15 (Financial Development & Growth)
- NEP-OPM-2011-08-15 (Open Economy Macroeconomic)
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