- (pp. 935-84)
AbstractMacro developments leading up to the 2008 crisis displayed an unprecedented degree of international synchronization. Before the crisis, all G7 countries experienced credit growth and, around the time of the Lehman bankruptcy, they all faced sharp and large contractions in both real and financial activity. Using a two-country model with financial frictions, we show that a global liquidity shortage induced by pessimistic self-fulfilling expectations can quantitatively generate patterns like those observed in the data. The model also suggests that crises are less frequent with more international financial integration but, when they hit, they are larger and more synchronized across countries.
Citation2018. "International Recessions." American Economic Review, 108 (4-5): 935-84. DOI: 10.1257/aer.20140412
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- F44 International Business Cycles
- G01 Financial Crises