Apocalypse then: The Evolution of the North Atlantic Economy and the Global Crisis

41 Pages Posted: 22 Dec 2011

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Trung Thanh Bui

Wells Fargo Bank

Multiple version iconThere are 2 versions of this paper

Date Written: December 2011

Abstract

The financial crisis that struck the global economy in late 2008 had its origins in excesses in the US housing market. Its reverberations, however, were felt around the world and nowhere more keenly than in Western Europe. While North Atlantic trade links were in relative stasis, the North Atlantic furnished a uniquely close relationship across financial institutions, as a combination of dominant US financial markets, European competition policy, and differences in financial regulation made the European banking system heavily dependent on dollar wholesale funding. Empirical estimates and macroeconomic model simulations indicate that growth spillovers predominantly flow westwards across the North Atlantic. The bellwether nature of US financial markets creates uniquely large spillovers to the rest of the world even in normal times, and these spillovers are only enhanced if disruptions to bank wholesale funding markets are added -- as occurred during the recent global crisis.

Keywords: economic crisis, financial deregulation, financial integration, North Atlantic economy

JEL Classification: E02, F34, N00, N10

Suggested Citation

Bayoumi, Tamim and Bui, Trung Thanh, Apocalypse then: The Evolution of the North Atlantic Economy and the Global Crisis (December 2011). CEPR Discussion Paper No. DP8688, Available at SSRN: https://ssrn.com/abstract=1976030

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Trung Thanh Bui

Wells Fargo Bank ( email )

1750 H St NW
6th Fl
Washington, DC 20006
United States

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