The 2008 Crisis: An International Finance (Over)view
Keywords:
financial crisis, risk premium, monetary policy, fiscal policy
Abstract
The aim of this paper is to present an international finance view of the 2008 crisis. By relying on four traditional international finance classes of models (the intertemporal current account approach, two exchange rate risk premium models and open-economy economic policy models), we addresed, theoretically, the importance of macro-finance aspects of the episode such as portfolio reallocation and its aggregate effects, using data for supporting the claims. Moreover, by telling the story of the crisis, divided in three periods (Great Moderation, Great Recession and Euro Crisis) we provided an overview of the deployments as well as an understanding of the development from a slightly point of view.
Downloads
Download data is not yet available.
References
Akerlof, G., Dickens, W., & Perry, G. (1996). Low inflation or no inflation: Should the federal reserve pursue complete price stability? Challenge, 39(5), 11–17. https://doi.org/10.1080/05775132.1996.11471920.
Albanesi, S., De Giorgi, G., & Nosal, J. (2017). Credit growth and the financial crisis: A new narrative (Techn ical Report No. w23740). National Bureau of Economic Research. https://doi.org/10.3386/w23740. Retrieved from https://www.jaromirnosal.net/uploads/6/0/7/5/60756213/newnarrative_september_2017.pdf.
Allen, F. & Gale, D. (2000). Financial contagion. Journal of Political Economy, 108(1),1–33. https://doi.org/10.1086/262109.
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2),105–148. https://doi.org/10.1007/s10887-015-9115-2.
Bernanke, B. S. (2005). The global saving glut and the us current account deficit(Technical report No 77). Retrieved from https://ideas.repec.org/p/fip/fedgsq/77.html.
Bernanke, B. S. (2002). Deflation: Making sure" it" doesn’t happen here: remarks before the national economists club, (Board of Governors of the Federal Reserve System (US) Speech No 530). Washington, DC. Retrieved from https://ideas.repec.org/p/fip/fedgsq/530.html.
Bernanke, B. S. (2004). The great moderation. remarks at the meetings of the eastern economic association. Washington DC. Retrieved from https://books.google.com.pk/books?hl=en&lr=&id=HHbjtB1NVLIC&oi=fnd&pg=PA145&dq=Bernanke,+B.+S.+(2004).++The+great+moderation.+remarks+at+the+meetings+of+the+eastern+economic+association.+washington+dc+february+20.&ots=4dCLwT66pb&sig=p7rSvA2qWFwjtH4TCxteWwS6FZc&redir_esc=y#v=onepage&q&f=false.
Blanchard, O. & Gal13 ̆053'f, J. (2007). Real wage rigidities and the new keynesian model. Journal of Money, Credit and Banking, 39(s1):35–65. https://doi.org/10.1111/j.1538-4616.2007.00015.x.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. The Journal of Economic Perspectives, 23(1),77–100. https://doi.org/10.1257/jep.23.1.77
Calomiris, C. W. (2009). The subprime turmoil: What’s old, what’s new, and what’s next. The Journal of Structured Finance, 15(1), 6–52. https://doi.org/10.3905/JSF.2009.15.1.006.
Claessens, S., Kose, M. A.,& Terrones, M. E. (2009). What happens during recessions, crunches and busts? Economic Policy, 24(60), 653–700. https://doi.org/10.1111/j.1468-0327.2009.00231.x.
Clarida, R., Gali, J., &Gertler, M. (2000). Monetary policy rules and macroeconomic stability: evidence and some theory. The Quarterly Journal of Economics, 115(1):147–180. https://doi.org/10.1162/003355300554692.
Clouse, J., Henderson, D., Orphanides, A., Small, D., & Tinsley, P. A., (2003). Monetary policy when the nominal short-term interest rate is zero. The B.E. Journal of Macroeconomics, 3(1), https://doi.org/10.2202/1534-5998.1088.
Costa Filho, J. R. M. G. (2015). Quão surpreendente foi a crise de 2008? Carta de Economia e Negócios, 2(1), 1-3.
Costa Filho, J. R. M. G. (2016). A crise financeira e a pol13 ̆053'ftica econômica: poderia ter sido diferente? Revista Economia Ensaios, 30(1), 66-94. https://doi.org/10.14393/REE-v30n1a2015-3.
Cumby, R. E. (1988). Is it risk?: Explaining deviations from uncovered interest parity. Journal of Monetary Economics, 22(2), 279–299. https://doi.org/10.1016/0304-3932(88)90023-2.
Deidda, L. Fattouh, B. (2002). Non-linearity between finance and growth. Economics Letters, 74(3), 339–345. https://doi.org/10.1016/S0165-1765(01)00571-7.
DeLong, J. B. & Summers, L. H. Feldstein, M., & Ramey, V. A. (2012). Fiscal policy in a depressed economy [with comments and discussion]. Brookings Papers on Economic Activity, 2012(1), 233–297.Dornbusch, R. (1980). Exchange rate risk and the macroeconomics of exchange rate determination (NBER Working Paper No. 493). National Bureau of Economic Research Cambridge, Mass., USA. https://doi.org/10.3386/w0493.
Driffill, J. (2003). Growth and finance. The Manchester School, 71(4), 363–380. https://doi.org/10.1111/1467-9957.00351.
Eichengreen, B. & Hausmann, R. (1999). Exchange rates and financial fragility (NBER Working Paper No. 7418). National bureau of economic research. https://doi.org/10.3386/w7418.
Eichengreen, B. (2002). International financial crises: Is the problem growing? Jahrbuch für Wirtschaftsgeschichte/Economic History Yearbook, 43(1), 89–104. https://doi.org/10.1524/jbwg.2002.43.1.89.
Fisher, I. (1933). The debt-deflation theory of great depressions. Econometrica: Journal of the Econometric Society,1(4) 337–357. https://doi.org/10.2307/1907327.
Frankel, J. A. (1982). In search of the exchange risk premium: A six-currency test assuming mean-variance optimization. Journal of international Money and Finance, 1, 255–274. https://doi.org/10.1016/0261-5606(82)90019-5.
Gennaioli, N. & Shleifer, A. (2018). A Crisis of Beliefs: Investor Psychology and Financial Fragility. Princeton, New Jersey: Princeton University Press.
Goodfriend, M. & King, R. G. (1997). The new neoclassical synthesis and the role of monetary policy. NBER Macroeconomics Annual, 12, 231–283.
Imbs, J. (2010). The first global recession in decades. IMF Economic Review, 58(2), 327–354. https://doi.org/10.1057/imfer.2010.13.
Kaminsky, G. L., Reinhart, C. M., & Vegh, C. A. (2003). The unholy trinity of financial contagion. The Journal of Economic Perspectives, 17(4),51–74. https://doi.org/10.1257/089533003772034899.
Kamin, S. B. & DeMarco, L. P. (2012). How did a domestic housing slump turn into a global financial crisis? Journal of International Money and Finance, 31(1), 10–41. https://doi.org/10.1016/j.jimonfin.2011.11.003.
Kim, S.-J. & Wu, E. (2008). Sovereign credit ratings, capital flows and financial sector development in emerging markets. Emerging Markets Review, 9(1),17–39. https://doi.org/10.1016/j.ememar.2007.06.001.
Kindleberger, C. (1989). Manias, panics, and crashes. New York: Basic Books.King, R. G. & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3),717–737. https://doi.org/10.2307/2118406
Lucas Jr, R. E. (2003). Macroeconomic priorities. The American Economic Review, 93(1), 1-14 https://doi.org/10.1257/000282803321455133.
McKinnon, R. I. (1963). Optimum currency areas. The American Economic Review, 53(4),717–725.
Mundell, R. A. (1961). A theory of optimum currency areas. The American Economic Review, 51(4),657–665.
Obstfeld, M. & Rogoff, K. (1995). The intertemporal approach to the current account (Vol. III, ch. 24). Handbook of International Economics,1731–1799.
Rajan, R. G. (2006). Has finance made the world riskier? European Financial Management, 12(4), 499–533. https://doi.org/10.1111/j.1468-036X.2006.00330.x.
Reinhart, C. M., & Reinhart, V. R. (2010). After the fall (No. w16334). National Bureau of Economic Research., https://doi.org/10.3386/w16334.
Reinhart, C. M. & Rogoff, K. S. (2009). This time is different: Eight centuries of financial folly. Princeton, New Jersey: Princeton University Press.
Rogoff, K. S., Savastano, M. A., & Reinhart, C. M. (2003). Debt intolerance (NER Working paper no. W9908), NBER Working Paper Series, https://doi.org/10.3386/w9908.
Rose, A. K. & Spiegel, M. M. (2012). Cross-country causes and consequences of the 2008 crisis: early warning. Japan and the World Economy, 24(1), 1–16. https://doi.org/10.1016/j.japwor.2011.11.001 .
Stock, J. H. and Watson, M. W. (2002). Has the business cycle changed and why? NBER Macroeconomics Annual, 17, 159–218.
Taylor, J. B. (2009). The financial crisis and the policy responses: An empirical analysis of what went wrong ( NEBR Working Paper 14631). National Bureau of Economic Research. Retrieved from https://www.nber.org/papers/w14631.pdf.
Wolf, M. (2015). The shifts and the shocks: What we’ve learned–and have still to learn–from the financial crisis. The Journal of Social, Political, and Economic Studies; 40(3), 302-308.
Citation: Costa-Filho, Joao. (2019). The 2008 Crisis: An International Finance (Over)view, Journal of Quantitative Methods, 3(2), 1-27. https://doi.org/10.29145/2019/jqm/030201
Albanesi, S., De Giorgi, G., & Nosal, J. (2017). Credit growth and the financial crisis: A new narrative (Techn ical Report No. w23740). National Bureau of Economic Research. https://doi.org/10.3386/w23740. Retrieved from https://www.jaromirnosal.net/uploads/6/0/7/5/60756213/newnarrative_september_2017.pdf.
Allen, F. & Gale, D. (2000). Financial contagion. Journal of Political Economy, 108(1),1–33. https://doi.org/10.1086/262109.
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2),105–148. https://doi.org/10.1007/s10887-015-9115-2.
Bernanke, B. S. (2005). The global saving glut and the us current account deficit(Technical report No 77). Retrieved from https://ideas.repec.org/p/fip/fedgsq/77.html.
Bernanke, B. S. (2002). Deflation: Making sure" it" doesn’t happen here: remarks before the national economists club, (Board of Governors of the Federal Reserve System (US) Speech No 530). Washington, DC. Retrieved from https://ideas.repec.org/p/fip/fedgsq/530.html.
Bernanke, B. S. (2004). The great moderation. remarks at the meetings of the eastern economic association. Washington DC. Retrieved from https://books.google.com.pk/books?hl=en&lr=&id=HHbjtB1NVLIC&oi=fnd&pg=PA145&dq=Bernanke,+B.+S.+(2004).++The+great+moderation.+remarks+at+the+meetings+of+the+eastern+economic+association.+washington+dc+february+20.&ots=4dCLwT66pb&sig=p7rSvA2qWFwjtH4TCxteWwS6FZc&redir_esc=y#v=onepage&q&f=false.
Blanchard, O. & Gal13 ̆053'f, J. (2007). Real wage rigidities and the new keynesian model. Journal of Money, Credit and Banking, 39(s1):35–65. https://doi.org/10.1111/j.1538-4616.2007.00015.x.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. The Journal of Economic Perspectives, 23(1),77–100. https://doi.org/10.1257/jep.23.1.77
Calomiris, C. W. (2009). The subprime turmoil: What’s old, what’s new, and what’s next. The Journal of Structured Finance, 15(1), 6–52. https://doi.org/10.3905/JSF.2009.15.1.006.
Claessens, S., Kose, M. A.,& Terrones, M. E. (2009). What happens during recessions, crunches and busts? Economic Policy, 24(60), 653–700. https://doi.org/10.1111/j.1468-0327.2009.00231.x.
Clarida, R., Gali, J., &Gertler, M. (2000). Monetary policy rules and macroeconomic stability: evidence and some theory. The Quarterly Journal of Economics, 115(1):147–180. https://doi.org/10.1162/003355300554692.
Clouse, J., Henderson, D., Orphanides, A., Small, D., & Tinsley, P. A., (2003). Monetary policy when the nominal short-term interest rate is zero. The B.E. Journal of Macroeconomics, 3(1), https://doi.org/10.2202/1534-5998.1088.
Costa Filho, J. R. M. G. (2015). Quão surpreendente foi a crise de 2008? Carta de Economia e Negócios, 2(1), 1-3.
Costa Filho, J. R. M. G. (2016). A crise financeira e a pol13 ̆053'ftica econômica: poderia ter sido diferente? Revista Economia Ensaios, 30(1), 66-94. https://doi.org/10.14393/REE-v30n1a2015-3.
Cumby, R. E. (1988). Is it risk?: Explaining deviations from uncovered interest parity. Journal of Monetary Economics, 22(2), 279–299. https://doi.org/10.1016/0304-3932(88)90023-2.
Deidda, L. Fattouh, B. (2002). Non-linearity between finance and growth. Economics Letters, 74(3), 339–345. https://doi.org/10.1016/S0165-1765(01)00571-7.
DeLong, J. B. & Summers, L. H. Feldstein, M., & Ramey, V. A. (2012). Fiscal policy in a depressed economy [with comments and discussion]. Brookings Papers on Economic Activity, 2012(1), 233–297.Dornbusch, R. (1980). Exchange rate risk and the macroeconomics of exchange rate determination (NBER Working Paper No. 493). National Bureau of Economic Research Cambridge, Mass., USA. https://doi.org/10.3386/w0493.
Driffill, J. (2003). Growth and finance. The Manchester School, 71(4), 363–380. https://doi.org/10.1111/1467-9957.00351.
Eichengreen, B. & Hausmann, R. (1999). Exchange rates and financial fragility (NBER Working Paper No. 7418). National bureau of economic research. https://doi.org/10.3386/w7418.
Eichengreen, B. (2002). International financial crises: Is the problem growing? Jahrbuch für Wirtschaftsgeschichte/Economic History Yearbook, 43(1), 89–104. https://doi.org/10.1524/jbwg.2002.43.1.89.
Fisher, I. (1933). The debt-deflation theory of great depressions. Econometrica: Journal of the Econometric Society,1(4) 337–357. https://doi.org/10.2307/1907327.
Frankel, J. A. (1982). In search of the exchange risk premium: A six-currency test assuming mean-variance optimization. Journal of international Money and Finance, 1, 255–274. https://doi.org/10.1016/0261-5606(82)90019-5.
Gennaioli, N. & Shleifer, A. (2018). A Crisis of Beliefs: Investor Psychology and Financial Fragility. Princeton, New Jersey: Princeton University Press.
Goodfriend, M. & King, R. G. (1997). The new neoclassical synthesis and the role of monetary policy. NBER Macroeconomics Annual, 12, 231–283.
Imbs, J. (2010). The first global recession in decades. IMF Economic Review, 58(2), 327–354. https://doi.org/10.1057/imfer.2010.13.
Kaminsky, G. L., Reinhart, C. M., & Vegh, C. A. (2003). The unholy trinity of financial contagion. The Journal of Economic Perspectives, 17(4),51–74. https://doi.org/10.1257/089533003772034899.
Kamin, S. B. & DeMarco, L. P. (2012). How did a domestic housing slump turn into a global financial crisis? Journal of International Money and Finance, 31(1), 10–41. https://doi.org/10.1016/j.jimonfin.2011.11.003.
Kim, S.-J. & Wu, E. (2008). Sovereign credit ratings, capital flows and financial sector development in emerging markets. Emerging Markets Review, 9(1),17–39. https://doi.org/10.1016/j.ememar.2007.06.001.
Kindleberger, C. (1989). Manias, panics, and crashes. New York: Basic Books.King, R. G. & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3),717–737. https://doi.org/10.2307/2118406
Lucas Jr, R. E. (2003). Macroeconomic priorities. The American Economic Review, 93(1), 1-14 https://doi.org/10.1257/000282803321455133.
McKinnon, R. I. (1963). Optimum currency areas. The American Economic Review, 53(4),717–725.
Mundell, R. A. (1961). A theory of optimum currency areas. The American Economic Review, 51(4),657–665.
Obstfeld, M. & Rogoff, K. (1995). The intertemporal approach to the current account (Vol. III, ch. 24). Handbook of International Economics,1731–1799.
Rajan, R. G. (2006). Has finance made the world riskier? European Financial Management, 12(4), 499–533. https://doi.org/10.1111/j.1468-036X.2006.00330.x.
Reinhart, C. M., & Reinhart, V. R. (2010). After the fall (No. w16334). National Bureau of Economic Research., https://doi.org/10.3386/w16334.
Reinhart, C. M. & Rogoff, K. S. (2009). This time is different: Eight centuries of financial folly. Princeton, New Jersey: Princeton University Press.
Rogoff, K. S., Savastano, M. A., & Reinhart, C. M. (2003). Debt intolerance (NER Working paper no. W9908), NBER Working Paper Series, https://doi.org/10.3386/w9908.
Rose, A. K. & Spiegel, M. M. (2012). Cross-country causes and consequences of the 2008 crisis: early warning. Japan and the World Economy, 24(1), 1–16. https://doi.org/10.1016/j.japwor.2011.11.001 .
Stock, J. H. and Watson, M. W. (2002). Has the business cycle changed and why? NBER Macroeconomics Annual, 17, 159–218.
Taylor, J. B. (2009). The financial crisis and the policy responses: An empirical analysis of what went wrong ( NEBR Working Paper 14631). National Bureau of Economic Research. Retrieved from https://www.nber.org/papers/w14631.pdf.
Wolf, M. (2015). The shifts and the shocks: What we’ve learned–and have still to learn–from the financial crisis. The Journal of Social, Political, and Economic Studies; 40(3), 302-308.
Citation: Costa-Filho, Joao. (2019). The 2008 Crisis: An International Finance (Over)view, Journal of Quantitative Methods, 3(2), 1-27. https://doi.org/10.29145/2019/jqm/030201
Published
2019-08-31
How to Cite
Costa-Filho, J. (2019). The 2008 Crisis: An International Finance (Over)view. Journal of Quantitative Methods, 3(2), 90-109. https://doi.org/10.29145/2019/jqm/030201
Section
Articles
Copyright (c) 2019 João Costa-Filho
This work is licensed under a Creative Commons Attribution 4.0 International License.
JQM follows an open-access publishing policy and full text of all published articles is available free, immediately upon publication of an issue. The journal’s contents are published and distributed under the terms of the Creative Commons Attribution 4.0 International (CC-BY 4.0) license. Thus, the work submitted to the journal implies that it is original, unpublished work of the authors (neither published previously nor accepted/under consideration for publication elsewhere). On acceptance of a manuscript for publication, a corresponding author on the behalf of all co-authors of the manuscript will sign and submit a completed Copyright and Author Consent Form.
