Impacts, Transmission and Recovery
KDI/EWC series on Economic Policy
Edited by Maurice Obstfeld, Dongchul Cho and Andrew Mason
Chapter 2: The Global Financial Crisis: Is It Unprecedented?
Michael D. Bordo and John S. Landon-Lane INTRODUCTION A financial crisis in the United States in 2007 spread to Europe and led to a recession across the world in 2007–09. Have we seen patterns like this before? Or is the recent experience novel? This chapter compares the recent crisis and recent recession to earlier international financial crises and global recessions. First we review the dimensions of the recent crisis. We then present some historical narrative on earlier global crises in the nineteenth and twentieth centuries. The description of earlier global crises leads to a sense of déjà vu. We next demarcate several chronologies of the incidence of various kinds of crises: banking, currency and debt crises and combinations of them across a large number of countries for the period from 1880 to 2010. These chronologies come from earlier work of Bordo with Barry Eichengreen, Daniela Klingebiel and Maria Soledad Martinez-Peria and with Chris Meissner (Bordo et al. 2001; Bordo and Meissner 2007), from Carmen Reinhart and Kenneth Rogoff ’s recent book (2009), and from a study by the International Monetary Fund (Laeven and Valencia 2010).1 Based on these chronologies we look for clusters of crisis events that occurred in a number of countries and across continents. These we label global financial crises. International financial crises inevitably are associated with recessions. We then ascertain the impact of the global financial crises identified by our cluster analysis on real output in the countries affected. To do this we first...
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