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The Global Financial Crisis

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Author Info

  • Gaston Gelos
  • Robert Rennhack
  • James P Walsh
  • Pelin Berkmen

Abstract

We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/280.

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Length: 19
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/280

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Related research

Keywords: Emerging markets; Credit expansion; Developing countries; Economic forecasting; Economic growth; Financial systems; Flexible exchange rates; Global Financial Crisis 2008-2009; Trade; current account balance; exchange rate; exchange rates; world trade; world trade organization; balance of payments; accession countries; exchange rate peg; exchange rate flexibility; trade openness; exchange restrictions; global competitiveness; exchange arrangements; exchange rate policy; external shocks; export volumes; transmission of shocks; exchange rate regime; trade channels; exchange rate pegs; effective exchange rate; short-term debt; trade links; open economy; domestic savings; de facto exchange rate regime; prudential regulation; real effective exchange rate; exchange rate appreciation; limited exchange rate flexibility; world markets; trading partners;

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References

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  1. AndrewK. Rose & MarkM. Spiegel, 2010. "Cross-Country Causes And Consequences Of The 2008 Crisis: International Linkages And American Exposure," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 15(3), pages 340-363, 08.
  2. Hui Tong & Shang-Jin Wei, 2010. "The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis," Working Papers, Hong Kong Institute for Monetary Research 172010, Hong Kong Institute for Monetary Research.
  3. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
  4. Hui Tong & Shang-Jin Wei, 2009. "The Composition Matters," IMF Working Papers 09/164, International Monetary Fund.
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