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The potential impact of the global financial crisis on world trade

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  • McKibbin, Warwick J.
  • Stoeckel, Andrew

Abstract

This paper models the global financial crisis as a combination of shocks to global housing markets and sharp increases in risk premia of firms, households and international investors in a global economic model. The model has six sectors of production and trade in 15 major economies and regions. The paper shows that the shocks observed in financial markets can be used to generate the severe economic contraction in global trade and production experienced in 2009. In particular the distinction between the production and trade of durable and non durable goods plays a key role in explaining the much larger contraction in trade than GDP experienced by most economies. The paper explores the implications of the large increase in fiscal deficits and the implications of a global trade war in response to the financial crisis.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5134.

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Date of creation: 01 Nov 2009
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Handle: RePEc:wbk:wbrwps:5134

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Keywords: Economic Theory&Research; Debt Markets; Emerging Markets; Banks&Banking Reform; Labor Policies;

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References

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  1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  2. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper, Federal Reserve Bank of Atlanta 2010-01, Federal Reserve Bank of Atlanta.
  3. John B. Taylor, 2009. "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong," NBER Working Papers 14631, National Bureau of Economic Research, Inc.
  4. McKibbin, Warwick J. & Pearce, David & Stegman, Alison, 2007. "Long term projections of carbon emissions," International Journal of Forecasting, Elsevier, Elsevier, vol. 23(4), pages 637-653.
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Cited by:
  1. World Bank & International Monetary Fund, 2010. "Global Monitoring Report 2010 : The MDGs after the Crisis," World Bank Publications, The World Bank, number 2444, August.
  2. Warwick J McKibbin & Andy Stoeckel, 2009. "Modelling the Global Financial Crisis," CAMA Working Papers 2009-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Lin, Justin Yifu & Martin, William J., 2009. "The Financial Crisis and Its Impact on the Global Agricultural Landscape," 2009 Conference, August 16-22, 2009, Beijing, China, International Association of Agricultural Economists 53208, International Association of Agricultural Economists.
  4. Davin Chor & Kalina Manova, 2010. "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis," Working Papers, Singapore Management University, School of Economics 08-2010, Singapore Management University, School of Economics.
  5. Escaith, Hubert & Lindenberg, Nannette & Miroudot, S├ębastien, 2010. "International Supply Chains and Trade Elasticity in Times of Global Crisis," MPRA Paper 20478, University Library of Munich, Germany.

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