Butterfly effect: The US real estate market downturn and the Asian recession

Yi Xue (), Yin He and Xinjian Shao

Finance Research Letters, 2012, vol. 9, issue 2, 92-102

Abstract: We construct a comprehensive measure for the evolution of the US financial crisis by extracting the common components in the real estate market (S&P Case-Shiller composite-10 housing price index), the equity market (S&P 500 index), and the money market (M2 money multiplier). We then investigate the effects of this crisis on six Asian economies. Using the quarterly data from Q1 1991 to Q1 2010, we find that, surprisingly, the Asian equity markets are not contagious by the crisis; rather, trade contagion is the dominant transmission channel for the crisis to be transmitted to Asia. Finally, our empirical investigations suggest that monetary policy, rather fiscal policy, is a better choice for assisting Asian economies during this crisis.

Keywords: Sub-prime crisis; Economic effects; Common component analysis; Transmission mechanism (search for similar items in EconPapers)
JEL-codes: E60 F30 G01 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:9:y:2012:i:2:p:92-102

DOI: 10.1016/j.frl.2012.02.003

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