Cross-Country Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure

39 Pages Posted: 21 Sep 2009 Last revised: 19 Jun 2023

See all articles by Andrew Kenan Rose

Andrew Kenan Rose

University of California - Haas School of Business; NUS Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

Abstract

This paper models the causes of the 2008 financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. Our analysis is conducted on a cross-section of 85 countries; we focus on international linkages that may have allowed the crisis to spread across countries. Our model of the cross-country incidence of the crisis combines 2008 changes in real GDP, the stock market, country credit ratings, and the exchange rate. We explore the linkages between these manifestations of the crisis and a number of its possible causes from 2006 and earlier. The causes we consider are both national (such as equity market run-ups that preceded the crisis) and, critically, international financial and real linkages between countries and the epicenter of the crisis. We consider the United States to be the most natural origin of the 2008 crisis, though we also consider six alternative sources of the crisis. A country holding American securities that deteriorate in value is exposed to an American crisis through a financial channel. Similarly, a country which exports to the United States is exposed to an American downturn through a real channel. Despite the fact that we use a wide number of possible causes in a flexible statistical framework, we are unable to find strong evidence that international linkages can be clearly associated with the incidence of the crisis. In particular, countries heavily exposed to either American assets or trade seem to behave little differently than other countries; if anything, countries seem to have benefited slightly from American exposure.

Suggested Citation

Rose, Andrew Kenan and Rose, Andrew Kenan and Spiegel, Mark M., Cross-Country Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure (September 2009). NBER Working Paper No. w15358, Available at SSRN: https://ssrn.com/abstract=1475550

Andrew Kenan Rose (Contact Author)

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Mark M. Spiegel

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HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

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