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International Recessions

Author

Listed:
  • Fabrizio Perri
  • Vincenzo Quadrini

Abstract

Macro developments leading up to the 2008 crisis displayed an unprecedented degree of international synchronization. Before the crisis, all G7 countries experienced credit growth and, around the time of the Lehman bankruptcy, they all faced sharp and large contractions in both real and financial activity. Using a two-country model with financial frictions, we show that a global liquidity shortage induced by pessimistic self-fulfilling expectations can quantitatively generate patterns like those observed in the data. The model also suggests that crises are less frequent with more international financial integration but, when they hit, they are larger and more synchronized across countries.

Suggested Citation

  • Fabrizio Perri & Vincenzo Quadrini, 2018. "International Recessions," American Economic Review, American Economic Association, vol. 108(4-5), pages 935-984, April.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:4-5:p:935-84
    Note: DOI: 10.1257/aer.20140412
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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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