How Does the US Credit Crisis Affect the Asia-Pacific Economies? --- Analysis based on a General Equilibrium Model
AbstractThe current financial crisis differs from most post-war recessions in that the balance sheets of both households and banks have been severely damaged, which could lead to structural changes in the behaviour of households. Therefore, it may exert some far-reaching effects on regional economies in the short run as well as in the medium term. This paper studies these effects using a multi-country dynamic structural model. In the short run, the US credit crisis weighs heavily upon the Asia-Pacific economies through financial linkages in addition to the traditional trade channel due to the deepening global financial integration. The relative importance of various financial channels differs notably across economies. While stock market contagion is more important for advanced economies, flight to quality across borders plays a key role in less developed economies. From a medium-term perspective, changes in the US household behavior caused by the credit crisis can help correct global imbalances, but the effectiveness hinges largely upon how long US households can maintain a reasonably higher savings rate. In addition, although the declining American public savings rate may not exert material impacts on the global imbalances, it can darken regional growth prospects due to a potentially higher world real interest rate.
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Bibliographic InfoPaper provided by Hong Kong Monetary Authority in its series Working Papers with number 0912.
Length: 25 pages
Date of creation: Jul 2009
Date of revision:
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Global financial crisis; Financial contagion; Global imbalances;
Find related papers by JEL classification:
- D10 - Microeconomics - - Household Behavior - - - General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
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