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

R. Gaston Gelos (), Robert Rennhack, James Walsh and Pelin Berkmen

No 09/280, IMF Working Papers from International Monetary Fund

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.

Keywords: Emerging markets; Credit expansion; Developing countries; Economic forecasting; Economic growth; Financial systems; Flexible exchange rates; Global Financial Crisis 2008-2009; Trade (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-opm
Date: 2009-12-01
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Journal Article: The global financial crisis: Explaining cross-country differences in the output impact (2012)
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