Financial Crises and Recession in the Global Economy, Second Edition

Financial Crises and Recession in the Global Economy, Second Edition

Roy E. Allen

This timely and authoritative book explains the rise and fall of economies in Asia, Central America and Europe since 1980 and discusses these crises in the context of continuing economic globalization. This updated and fully revised edition includes a detailed account of the Mexican crisis of 1994–95, the Japanese crisis which has worsened in the late 1990s and the Asian crisis which emerged in 1997. Professor Allen discusses the impact of new uses and forms of money, and new financial flows such as electronic monies and offshore financial markets.

Chapter 4: Financial Crises and Recession

Roy E. Allen

Subjects: economics and finance, financial economics and regulation, international economics


Page 99  4.Financial Crises and Recession  Based upon the structural changes and cause­effect material of Chapters 1, 2 and 3, this chapter presents case studies of the 1982 world recession, the 1987 world  stock market crash, the 1980s and continuing world debt crises, the slumps of the early 1990s, the 1994–95 Mexican crisis, the Japanese crisis after 1989, and the  crises in various Asian countries beginning in 1997. Various common patterns are found, especially with regard to the increased international transfers of investment  based upon interest rate and financial strategy parities (Chapter 1), the subsequent adjustments in international trade (Chapter 2), the decline and increased variability of  monetary velocity, and the creation, loss, and transfer of monetary wealth (Chapter 3).  I. COMMON PATTERNS  Recent episodes of financial crises and recession in the global economy have common patterns. In most cases, a country or region initially benefits from expanded  supplies of base money, new ‘quasi­moneys’ which are created from base moneys, and credit supplies — a financial liberalization phase. The financial sector expands  as it captures profit from new efficiencies and opportunities allowed by globalization. The country or region, for a time, may be favored by international investors; thus  the banking system, including government, is well­capitalized and able to expand money­liquidity. Assets increase in monetary value and interest rates are low, and this  wealth effect encourages consumption, borrowing, business investment, and perhaps government spending. Productive resources are more fully utilized and economic  growth is well supported. There...

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