The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact

20 Pages Posted: 5 Jan 2010

See all articles by Pelin Berkmen

Pelin Berkmen

International Monetary Fund (IMF)

Gaston Gelos

International Monetary Fund

Robert K. Rennhack

International Monetary Fund (IMF)

James P. Walsh

International Monetary Fund (IMF)

Date Written: December 2009

Abstract

We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables.

Keywords: Credit expansion, Cross country analysis, Developing countries, Economic forecasting, Economic growth, Emerging markets, Financial crisis, Financial systems, Fiscal policy, Flexible exchange rates, Global Financial Crisis 2008-2009, Trade

Suggested Citation

Berkmen, S. Pelin and Gelos, R. Gaston and Rennhack, Robert K. and Walsh, James P., The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact (December 2009). IMF Working Papers, Vol. , pp. 1-19, 2009. Available at SSRN: https://ssrn.com/abstract=1531513

S. Pelin Berkmen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

R. Gaston Gelos

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Robert K. Rennhack

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

James P. Walsh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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