EconPapers    
Economics at your fingertips  
 

The Great Recession: A Self-Fulfilling Global Panic

Eric van Wincoop () and Philippe Bacchetta ()

No 413, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: While the 2008-2009 financial crisis originated in the United States, we witnessed steep declines in output, consumption and investment of similar magnitude around the globe. This synchronicity is surprising in the context of both existing theory and past business cycle experience. Theory implies that perfect co-movement can only happen when countries are perfectly integrated, in sharp contrast to the observed home bias in goods and financial markets. We develop a two-country model that allows for self-fulfilling business cycle panics and is consistent with high internationl co-movements and the worldwide increase in perceived uncertainty. We show that limited integration of goods and financial markets is sufficient for business cycle panics to be perfectly synchronized across countries. Moreover, a panic is more likely with tight credit, low interest rates, and unresponsive fiscal policy. We argue that the world was particularly vulnerable to such global panics in 2008.

New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2013/paper_413.pdf (application/pdf)

Related works:
Journal Article: The Great Recession: A Self-Fulfilling Global Panic (2016) Downloads
Working Paper: The Great Recession: A Self-Fulfilling Global Panic (2013) Downloads
Working Paper: The Great Recession: A Self-Fulfilling Global Panic (2013) Downloads
Working Paper: The Great Recession: A Self-Fulfilling Global Panic (2013) Downloads
Working Paper: The Great Recession: A Self-Fulfilling Global Panic (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:413

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2019-04-25
Handle: RePEc:red:sed013:413