International Recessions

Vincenzo Quadrini and Fabrizio Perri

No 8483, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The 2008-2009 crisis was characterized by an unprecedented degree of international synchronization as all major industrialized countries experienced large macroeconomic contractions around the date of Lehman bankruptcy. At the same time countries also experienced large and synchronized tightening of credit conditions. We present a two-country model with financial market frictions where a credit tightening can emerge as a self-fulfilling equilibrium caused by pessimistic but fully rational expectations. As a result of the credit tightening, countries experience large and endogenously synchronized declines in asset prices and economic activity (international recessions). The model suggests that these recessions are more severe if they happen after a prolonged period of credit expansion.

Keywords: Credit tightness; International crisis (search for similar items in EconPapers)
JEL-codes: E32 F3 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (44)

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Related works:
Journal Article: International Recessions (2018)
Working Paper: International recessions (2011)
Working Paper: International Recessions (2011)
Working Paper: International Recessions (2011)
Working Paper: International Recessions (2011)
Working Paper: International recessions (2010)
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