’s Institute for Capacity Development, about why some countries still haven’t been able to fully recover, what are the implicationsofrecessions and crises for policymaking, and the new stylized model for economic development.
Hites Ahir : As you know, it is about ten years since the onset of the Global Financial Crisis. A search for “global financial crisis” in Google shows about 14 million results, while Google Scholar shows more than 256,000 results. Do you think we have answered all the questions about the crisis?
Valerie Cerra : In some ways, the global financial
financial crisis affects the balance sheets of financial institutions, corporates, and households, and thereby influences the availability of credit, and thus the performance of the real economy. Claessens, Kose, and Terrones (2008) study the linkages between macroeconomic and financial variables around business and financial cycles in a large set of Organization for Economic Cooperation and Development countries from 1960–2007. In particular, they consider the implicationsofrecessions when they coincide with financial market difficulties, including credit crunches
The world economy is experiencing its most severe recession since the Great Depression. Two aspects of the current recession are notable: (1) it was preceded by sharp drops in asset prices and credit; and (2) it is highly synchronized. There has been a vibrant research program studying the implicationsofrecessions with such features. Based on the results of this research program, this article provides brief answers to seven commonly asked questions about recessions .
Question 1: What happens during recessions?
According to the National Bureau of
Mr. Stijn Claessens, Majid Malaika, and Mr. Marco Terrones
recessions, credit crunches, and asset (house and equity) price busts? And are recessions associated with credit crunches and asset price busts different from other recessions?
To shed light on these questions, we undertook a comprehensive analysis of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 Organization for Economic Cooperation and Development countries between 1960 and 2007 ( Claessens, Kose, and Terrones, 2008 ). This is the first detailed, cross-country empirical study addressing the implicationsof
analyze the implicationsofrecessions and recoveries accompanied by periods of financial disruptions and uncertainty. In Chapter 11 , we use a smaller sample of countries because we include only those with sufficient data coverage to conduct our empirical exercise. We provide the details of these changes in the relevant chapters.
Methodology: Let’s Date
Our measure of the global business cycle is the annual growth rate of real world GDP per capita. This is the difference between the weighted real GDP growth of countries in our sample and world population
Mr. Marco Terrones, Mr. Ayhan Kose, and Mr. Stijn Claessens
(2008) , to the best of our knowledge, there is no comprehensive empirical analysis of these links. 5
Our paper thus fills three gaps in the literature. First, we examine the implications of episodes of recessions, credit crunches, house and equity price busts for a large set of macroeconomic and financial variables for a sizeable number of countries over a long period of time. Second, our study is the first detailed, cross-country empirical analysis addressing the implicationsofrecessions when they coincide with certain types of financial market difficulties
New Q&A feature in this issue focuses on "Seven Questions about Recessions" (by Marco Terrones); IMF research summaries on financial stress (by Selim Elekdag) and on the real effects of the 2007–08 financial crisis (by Hui Tong); listing of visiting scholars at the IMF during April–June 2009; listing of recent IMF Working Papers; listing of contents of Vol. 56 No. 2 of IMF Staff Papers; listing of recent external publications by IMF staff; and a feature on Staff Position Notes, the IMF’s new policy paper series, including a list of recent papers.
Mr. Marco Terrones, Mr. Ayhan Kose, and Mr. Stijn Claessens
We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42
IMF Research Perspective (formerly published as IMF Research Bulletin) is a new, redesigned online newsletter covering updates on IMF research. In the inaugural issue of the newsletter, Hites Ahir interviews Valeria Cerra; and they discuss the economic environment 10 years after the global financial crisis. Research Summaries cover the rise of populism; economic reform; labor and technology; big data; and the relationship between happiness and productivity. Sweta C. Saxena was the guest editor for this inaugural issue.
, Rogoff and Savastano, 2003 ). Finally, while some EMEs have accumulated foreign exchange reserves in the last few years and have used them to counteract exchange rate volatility, it is difficult to foresee that these will be enough to shield them from significant capital outflows and sudden stops in case of crisis. In this paper we have provided some initial evidence, but more research will be necessary to reach a comprehensive view on the causes and implicationsofrecessions and financial crises in emerging economies.
As a proxy for private debt, we use