Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Great Recession: US dynamics and spillovers to the world economy

Contents:

Author Info

  • Fabio Bagliano

    ()
    (University of Turin and CeRP)

  • Claudio Morana

    ()
    (Università del Piemonte Orientale and CeRP)

Abstract

The paper aims at assessing the mechanics of the Great Recession, considering both its domestic propagation within the US, as well as its spillovers to advanced and emerging economies. A total of 50 countries has been investigated by means of a large-scale open economy macroeconometric model, providing an accurate assessment of the international macro/finance interface over the whole 1980-2009 period. It is found that a boom-bust credit cycle interpretation of the crisis is consistent with the empirical evidence. Moreover, concerning the real effects of the crisis within the US, stronger evidence of an asset prices channel, rather than a liquidity channel, has been detected. The results also support the effectiveness of the expansionary fiscal/monetary policy mix implemented by the Fed and the US government. Concerning the spillovers to the world economy, it is found that while the financial shock has spilled over to foreign countries through US housing and stock price dynamics, as well as excess liquidity creation, the trade channel likely is the key transmission mechanism of the real shock.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cerp.unito.it/images/stories/wp_103.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to cerp.unito.it:80 (Bad hostname). If this is indeed the case, please notify (Silvia Maero)
Download Restriction: no

Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 103.

as in new window
Length: 50 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:crp:wpaper:103

Contact details of provider:
Postal: Via Real Collegio 30, 10024 Moncalieri (TO)
Phone: 39 011 6705040
Fax: +39 011 6705042
Email:
Web page: http://cerp.unito.it
More information through EDIRC

Related research

Keywords: Great Recession; financial crisis; economic crisis; boombust; credit cycle; international business cycle; factor vector autoregressive models;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  2. Bems, Rudolfs & Dedola, Luca & Smets, Frank, 2007. "US Imbalances: The Role of Technology and Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6110, C.E.P.R. Discussion Papers.
  3. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series, Berkeley Program on Housing and Urban Policy qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  4. Granger, Clive W. J. & Jeon, Yongil, 2004. "Thick modeling," Economic Modelling, Elsevier, Elsevier, vol. 21(2), pages 323-343, March.
  5. Stephen G. Cecchetti, 2008. "Measuring the Macroeconomic Risks Posed by Asset Price Booms," NBER Chapters, National Bureau of Economic Research, Inc, in: Asset Prices and Monetary Policy, pages 9-43 National Bureau of Economic Research, Inc.
  6. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the�macroeconomy," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 24(1), pages 180-205, spring.
  7. Fabio C. Bagliano & Claudio Morana, 2006. "International Macroeconomic Dynamics: A Factor Vector Autoregressive Approach," Carlo Alberto Notebooks, Collegio Carlo Alberto 32, Collegio Carlo Alberto.
  8. Peter Temin, 2010. "The Great Recession and the Great Depression," NBER Working Papers 15645, National Bureau of Economic Research, Inc.
  9. Robert J. Barro & José F. Ursúa, 2009. "Stock-Market Crashes and Depressions," NBER Working Papers 14760, National Bureau of Economic Research, Inc.
  10. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2010. "Asset prices, exchange rates and the current account," European Economic Review, Elsevier, Elsevier, vol. 54(5), pages 643-658, July.
  11. Michael D. Bordo & Harold James, 2009. "The Great Depression Analogy," NBER Working Papers 15584, National Bureau of Economic Research, Inc.
  12. Kose, M. Ayhan & Otrok, Christopher & Prasad, Eswar, 2008. "Global Business Cycles: Convergence or Decoupling?," IZA Discussion Papers 3442, Institute for the Study of Labor (IZA).
  13. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E., 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7085, C.E.P.R. Discussion Papers.
  14. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(3), pages 533-545, March.
  15. Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jirka, 2006. "How large is the housing wealth effect? A new approach," CFS Working Paper Series, Center for Financial Studies (CFS) 2006/35, Center for Financial Studies (CFS).
  16. Alexander Chudik & M. Hashem Pesaran, 2013. "Econometric Analysis of High Dimensional VARs Featuring a Dominant Unit," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(5-6), pages 592-649, August.
  17. Robert S. Chirinko & Leo de Haan & Elmer Sterken, 2008. "Asset Price Shocks, Real Expenditures, and Financial Structure: A Multi-Country Analysis," CESifo Working Paper Series, CESifo Group Munich 2342, CESifo Group Munich.
  18. Richard S. Grossman & Christopher M. Meissner, 2010. "International aspects of the Great Depression and the crisis of 2007: similarities, differences, and lessons," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 26(3), pages 318-338, Autumn.
  19. Schularick, Moritz & Taylor, Alan M., 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7570, C.E.P.R. Discussion Papers.
  20. Gauger, Jean & Snyder, Tricia Coxwell, 2003. "Residential Fixed Investment and the Macroeconomy: Has Deregulation Altered Key Relationships?," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 27(3), pages 335-54, November.
  21. Bierens, Herman J, 2000. "Nonparametric Nonlinear Cotrending Analysis, with an Application to Interest and Inflation in the United States," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 18(3), pages 323-37, July.
  22. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp303, IIIS.
  23. Fabio C. Bagliano & Claudio Morana, 2010. "The Great Recession: US dynamics and spillovers to the world economy," Working papers, Former Department of Economics and Public Finance "G. Prato", University of Torino 17, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  24. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 135-171, January.
  25. James H. Stock & Mark W. Watson, 2005. "Implications of Dynamic Factor Models for VAR Analysis," NBER Working Papers 11467, National Bureau of Economic Research, Inc.
  26. Rudolfs Bems & Robert C Johnson & Kei-Mu Yi, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 58(2), pages 295-326, December.
  27. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 215-220, October.
  28. Dooley, Michael & Hutchison, Michael, 2009. "Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 28(8), pages 1331-1349, December.
  29. Ricardo Reis, 2009. "Interpreting the Unconventional U.S. Monetary Policy of 2007-09," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 119-182.
  30. Ravi Jagannathan & Mudit Kapoor & Ernst Schaumburg, 2009. "Causes of the Great Recession of 2007-9: The Financial Crisis is the Symptom not the Disease!," NBER Working Papers 15404, National Bureau of Economic Research, Inc.
  31. Fabio Bagliano & Claudio Morana, 2008. "Factor vector autoregressive estimation: a new approach," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 3(1), pages 15-23, June.
  32. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers, Michigan State - Econometrics and Economic Theory 8905, Michigan State - Econometrics and Economic Theory.
  33. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
  34. Gaston Gelos & Robert Rennhack & James P Walsh & Pelin Berkmen, 2009. "The Global Financial Crisis," IMF Working Papers, International Monetary Fund 09/280, International Monetary Fund.
  35. Logan Lewis & Linda Tesar & Andrei Levchenko, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," 2010 Meeting Papers, Society for Economic Dynamics 109, Society for Economic Dynamics.
  36. Morana, Claudio, 2006. "A small scale macroeconometric model for the Euro-12 area," Economic Modelling, Elsevier, Elsevier, vol. 23(3), pages 391-426, May.
  37. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 149-233.
  38. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2010. "Supply, Demand and Monetary Policy Shocks in a Multi-Country New Keynesian Model," CESifo Working Paper Series, CESifo Group Munich 3081, CESifo Group Munich.
  39. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  40. M. Ayhan Kose & Eswar Prasad & Christopher Otrok, 2008. "Global Business Cycles," IMF Working Papers, International Monetary Fund 08/143, International Monetary Fund.
  41. Alm, James & Follain, James R., 1984. "Alternative Mortgage Instruments, the Tilt Problem, and Consumer Welfare," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 19(01), pages 113-126, March.
  42. Robert J Gordon, 2005. "What Caused the Decline in US Business Cycle Volatility?," RBA Annual Conference Volume, Reserve Bank of Australia, in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
  43. Michael D. Bordo & John Landon-Lane, 2010. "The Lessons from the Banking Panics in the United States in the 1930s for the Financial Crisis of 2007-2008," NBER Working Papers 16365, National Bureau of Economic Research, Inc.
  44. Buiter, Willem H., 2009. "The Limits to Fiscal Stimulus," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7607, C.E.P.R. Discussion Papers.
  45. Tamim Bayoumi & Ola Melander, 2008. "Credit Matters," IMF Working Papers, International Monetary Fund 08/169, International Monetary Fund.
  46. Nippani, Srinivas & Smith, Stanley D., 2010. "The increasing default risk of US Treasury securities due to the financial crisis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(10), pages 2472-2480, October.
  47. Ralf Becker & Walter Enders & Junsoo Lee, 2006. "A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks," Journal of Time Series Analysis, Wiley Blackwell, Wiley Blackwell, vol. 27(3), pages 381-409, 05.
  48. Adalid, Ramón & Detken, Carsten, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series, European Central Bank 0732, European Central Bank.
  49. Silvia Sgherri & Alessandro Galesi, 2009. "Regional Financial Spillovers Across Europe," IMF Working Papers, International Monetary Fund 09/23, International Monetary Fund.
  50. Ross Levine, 2010. "An Autopsy of the U.S. Financial System," NBER Working Papers 15956, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:crp:wpaper:103. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvia Maero) The email address of this maintainer does not seem to be valid anymore. Please ask Silvia Maero to update the entry or send us the correct address.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.