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

By Gaston Gelos, Robert Rennhack, James P Walsh, Pelin Berkmen

December 1, 2009

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Gaston Gelos, Robert Rennhack, James P Walsh, and Pelin Berkmen. The Global Financial Crisis - Explaining Cross-Country Differences in the Output Impact, (USA: International Monetary Fund, 2009) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Credit, Emerging and frontier financial markets, Exchange rate flexibility, Exchange rates, Exports

Keywords: Economy, Emerging market, Exchange rate, Financial crisis, Share, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/280
Stock No:

WPIEA2009280
ISBN:

9781451874259
ISSN:

1018-5941

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