Sub-Prime Financial Crisis and US Policy Choices

Yonghyup Oh and Wonho Song ()
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Yonghyup Oh: Korea Institute for International Economic Policy

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: This paper argues that the subprime financial crisis reflects weakness in the real economy of the US from its start. Our comparison with prior US recessions indicates that the epicenters of most of the recessions were in the financial sector and that recessionary pressure was present in the last quarter of 2007 in the US economy. The high level of nations debts combined with a high rate of inflation show a difficult situation US policy makers face. At an international scene, there would be trade-off between protectionist policy measures and the USs role as a global sheriff. Effects of US policy measures, either monetary or fiscal, would be short-living, while more fundamental changes to create productivity gains would be the right policy for recovery of the US economy.

Keywords: financial crisis; Recession; inflation; sub-prime mortgage; financial regulation (search for similar items in EconPapers)
JEL-codes: E52 E62 G01 G28 (search for similar items in EconPapers)
Date: 2008-01
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