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The Global Financial Crisis - Explaining Cross-Country Differences in the Output Impact

Author

Listed:
  • R. G 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.

Suggested Citation

  • R. G Gelos & Robert Rennhack & James P Walsh & Pelin Berkmen, 2009. "The Global Financial Crisis - Explaining Cross-Country Differences in the Output Impact," IMF Working Papers 09/280, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/280
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    References listed on IDEAS

    as
    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, vol. 15(3), pages 340-363, August.
    2. Berkmen, S. Pelin & Gelos, Gaston & Rennhack, Robert & Walsh, James P., 2012. "The global financial crisis: Explaining cross-country differences in the output impact," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 42-59.
    3. Valerie Cerra & Ugo Panizza & Sweta C. Saxena, 2013. "International Evidence On Recovery From Recessions," Contemporary Economic Policy, Western Economic Association International, vol. 31(2), pages 424-439, April.
    4. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
    5. Hui Tong & Shang-Jin Wei, 2011. "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2023-2052.
    6. Philip R Lane & Gian Maria Milesi-Ferretti, 2011. "The Cross-Country Incidence of the Global Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 77-110, April.
    7. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
    8. N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
    9. Tsangarides, Charalambos G., 2012. "Crisis and recovery: Role of the exchange rate regime in emerging market economies," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 470-488.
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    More about this item

    Keywords

    Credit expansion; Cross country analysis; Developing countries; Economic growth; Economic forecasting; Financial systems; Emerging markets; Financial crisis; Fiscal policy; Flexible exchange rates; Global Financial Crisis 2008-2009; Trade; Global crisis; transmission of shocks; cross-country linkages; current account balance; exchange rate; exchange rates;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G01 - Financial Economics - - General - - - Financial Crises

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