The Great Recession: A Self-Fulfilling Global Panic
- (pp. 177-98)
Abstract
While the 2008-2009 financial crisis originated in the United States, output, consumption, and investment declined by similar magnitudes around the globe. Given the partial integration of both goods and financial markets, what can account for the remarkable global business cycle synchronicity during this period? To address this question, we develop a two-country model allowing for self-fulfilling business cycle panics. We show that a business cycle panic will necessarily be synchronized across countries as long as there is a minimum level of economic integration. Several factors, including tight credit, made the global economy particularly vulnerable to a global panic in 2008.Citation
Bacchetta, Philippe, and Eric van Wincoop. 2016. "The Great Recession: A Self-Fulfilling Global Panic." American Economic Journal: Macroeconomics, 8 (4): 177-98. DOI: 10.1257/mac.20140092Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E58 Central Banks and Their Policies
- F44 International Business Cycles
- G01 Financial Crises
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