Impacts, Transmission and Recovery
KDI/EWC series on Economic Policy
Edited by Maurice Obstfeld, Dongchul Cho and Andrew Mason
Maurice Obstfeld, Dongchul Cho and Andrew Mason In 2008 the global economy witnessed the most severe crash since World War II. The prolonged subprime mortgage crisis in the United States finally erupted in a global panic, triggered by the Lehman Brothers bankruptcy filing in September. A sharp collapse in international trade followed, leaving no countries immune to the sequence of economic shocks. Suddenly the era of Great Moderation was transformed into the era of Great Recession, eliciting unprecedented macroeconomic policy responses in emerging and advanced economies alike. In most advanced countries, huge budget deficits emerged as policy interest rates fell to near-zero levels. Although the global economy began to recover in the second half of 2009, the crisis raised many questions: How different was this crisis from the previous ones? What flaws in financial markets contributed to the crisis? How important was financial globalization in exacerbating the immediate international spillovers of the crisis? How important were global imbalance and global overheating in explaining the global meltdown? Were all countries similar before the crisis in terms of major macro indicators? Did different precrisis fundamentals generate different postcrisis performances? How severe were the shocks to emerging countries such as Korea? This volume attempts to answer some of these questions, which are clearly of great importance for the future of the global economy. Part I of the volume consists of two chapters comparing the recent crisis with earlier ones. Part II contains four chapters on international aspects of the crisis: two about financial...