The Unexpected Global Financial Crisis : Researching Its Root Cause

Lin, Justin Yifu; Treichel, Volker

dc.creator	Lin, Justin Yifu
dc.creator	Treichel, Volker
dc.date	2012-03-19T17:28:31Z
dc.date	2012-03-19T17:28:31Z
dc.date	2012-01-01
dc.date.accessioned	2023-02-17T20:49:19Z
dc.date.available	2023-02-17T20:49:19Z
dc.identifier	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120109085942
dc.identifier	http://hdl.handle.net/10986/3222
dc.identifier.uri	http://localhost:8080/xmlui/handle/CUHPOERS/243567
dc.description	The world is currently still struggling with the aftermath of the worst economic crisis since the Great Depression. Following a description of the eruption, evolution and consequences of the global crisis, this paper reviews alternative hypotheses for the causes of the global financial crisis as well as their empirical evidence. The paper refutes the frequently voiced view that the global crisis was caused by global imbalances that reflected economic policies of East Asian countries. Instead, it argues that global imbalances were the result of excess demand in the United States, resulting from both the public debt in the United States arising from the Afghanistan and Iraqi wars and tax cuts and the overconsumption by households supported by the wealth effect from the housing bubble in the United States. The housing bubble itself was the outcome of the Federal Reserve's low interest rate policy in the aftermath of the burst of the "dot-com" bubble in 2001, the lack of appropriate financial regulation, and housing policies aimed at expanding the mortgage market to low-income borrowers. It was possible to maintain the large trade deficits of the United States for such a long period of time because of the dollar's reserve currency status. When the housing bubble in the United States burst, the global crisis ensued. The paper also analyzes why China's trade surplus increased significantly in general and with the United States in particular in recent years, and argues that this increase was caused by both the relocation of the labor-intensive tradable sector of East Asian economies to China and high corporate saving rates in China as a result of its dual-track approach to reform.
dc.language	English
dc.relation	Policy Research working paper ; no. WPS 5937
dc.rights	CC BY 3.0 IGO
dc.rights	http://creativecommons.org/licenses/by/3.0/igo/
dc.rights	World Bank
dc.subject	ASSET MANAGER
dc.subject	ASSET PRICE
dc.subject	ASSET PRICES
dc.subject	ASSET-LIABILITY MISMATCH
dc.subject	BAILOUT
dc.subject	BALANCE OF PAYMENTS
dc.subject	BALANCE OF PAYMENTS CRISES
dc.subject	BALANCE OF PAYMENTS CRISIS
dc.subject	BALANCE SHEET
dc.subject	BANK LENDING
dc.subject	BANKING INSTITUTIONS
dc.subject	BANKING SYSTEM
dc.subject	BANKRUPTCY
dc.subject	BORROWER
dc.subject	BORROWING COSTS
dc.subject	BUDGET DEFICIT
dc.subject	BUDGET SURPLUSES
dc.subject	BUSINESS CYCLE
dc.subject	BUSINESS CYCLES
dc.subject	CAPITAL ACCOUNT
dc.subject	CAPITAL FLOWS
dc.subject	CAPITAL INFLOWS
dc.subject	CAPITAL MARKETS
dc.subject	CAPITAL OUTFLOWS
dc.subject	CENTRAL BANK
dc.subject	CENTRAL BANKS
dc.subject	COLLATERAL
dc.subject	COMMERCIAL BANK
dc.subject	COMMERCIAL BANKS
dc.subject	COMMERCIAL PAPER
dc.subject	COMMERCIAL PAPER MARKET
dc.subject	COMMODITY PRICE
dc.subject	COMMODITY PRICES
dc.subject	CONSUMER CREDIT
dc.subject	CONSUMER GOODS
dc.subject	CONSUMPTION EXPENDITURES
dc.subject	CORPORATE SAVING
dc.subject	CREDIT DEFAULT
dc.subject	CREDIT DEFAULT SWAPS
dc.subject	CREDIT MARKET
dc.subject	CREDIT MARKETS
dc.subject	CREDITOR
dc.subject	CREDITORS
dc.subject	CURRENCY
dc.subject	CURRENT ACCOUNT DEFICIT
dc.subject	CURRENT ACCOUNT DEFICITS
dc.subject	CURRENT ACCOUNT SURPLUS
dc.subject	CURRENT ACCOUNT SURPLUSES
dc.subject	DEBT BURDENS
dc.subject	DEBT CRISIS
dc.subject	DEBT OBLIGATIONS
dc.subject	DEFAULT RISK
dc.subject	DEFAULTS
dc.subject	DEFICITS
dc.subject	DEPOSIT ACCOUNTS
dc.subject	DEPOSIT INSURANCE
dc.subject	DEPOSITS
dc.subject	DERIVATIVE
dc.subject	DERIVATIVE PRODUCTS
dc.subject	DERIVATIVES
dc.subject	DEVELOPING COUNTRIES
dc.subject	DISCLOSURE OF INFORMATION
dc.subject	DURABLE
dc.subject	DURABLE GOODS
dc.subject	ECONOMIC POLICIES
dc.subject	EMERGING ECONOMIES
dc.subject	EMERGING MARKET
dc.subject	EMERGING MARKET ECONOMIES
dc.subject	EMERGING MARKETS
dc.subject	EQUITIES
dc.subject	EQUITY FUND
dc.subject	EQUITY INVESTMENT
dc.subject	EQUITY MARKET
dc.subject	EQUITY MARKETS
dc.subject	EXCESS LIQUIDITY
dc.subject	EXCHANGE COMMISSION
dc.subject	EXCHANGE RATE
dc.subject	EXPORT COMPETITIVENESS
dc.subject	EXPORT SHARE
dc.subject	EXPORTERS
dc.subject	FEDERAL RESERVE
dc.subject	FEDERAL RESERVE BANK
dc.subject	FINANCIAL ASSETS
dc.subject	FINANCIAL CRISIS
dc.subject	FINANCIAL DISTRESS
dc.subject	FINANCIAL FLOWS
dc.subject	FINANCIAL INSTITUTIONS
dc.subject	FINANCIAL INSTRUMENT
dc.subject	FINANCIAL INSTRUMENTS
dc.subject	FINANCIAL MARKET
dc.subject	FINANCIAL MARKETS
dc.subject	FINANCIAL SYSTEM
dc.subject	FISCAL DEFICITS
dc.subject	FISCAL POLICIES
dc.subject	FISCAL POLICY
dc.subject	FIXED INCOME
dc.subject	FOREIGN CURRENCY
dc.subject	FOREIGN DIRECT INVESTMENT
dc.subject	FOREIGN EXCHANGE
dc.subject	FOREIGN EXCHANGE RESERVES
dc.subject	GLOBAL CAPITAL
dc.subject	GLOBAL CAPITAL MARKETS
dc.subject	GLOBAL ECONOMY
dc.subject	GLOBAL TRADE
dc.subject	GLOBALIZATION
dc.subject	GOVERNMENT BUDGET
dc.subject	GOVERNMENT POLICY
dc.subject	HEDGE FUND
dc.subject	HEDGE FUNDS
dc.subject	HOME EQUITY
dc.subject	HOME EQUITY LOAN
dc.subject	HOME EQUITY LOANS
dc.subject	HOME LOAN
dc.subject	HOME MORTGAGE
dc.subject	HOUSEHOLD INCOME
dc.subject	HOUSEHOLD WEALTH
dc.subject	INCOME INSTRUMENTS
dc.subject	INFLATION
dc.subject	INFLATIONARY EXPECTATIONS
dc.subject	INFLATIONARY PRESSURES
dc.subject	INSURANCE
dc.subject	INSURANCE COMPANIES
dc.subject	INSURANCE COMPANY
dc.subject	INSURANCE CORPORATION
dc.subject	INTEREST PAYMENTS
dc.subject	INTEREST RATE
dc.subject	INTEREST RATE POLICY
dc.subject	INTEREST RATES
dc.subject	INTERNATIONAL BANK
dc.subject	INTERNATIONAL BORROWING
dc.subject	INTERNATIONAL ECONOMICS
dc.subject	INTERNATIONAL FINANCIAL STATISTICS
dc.subject	INTERNATIONAL MARKETS
dc.subject	INTERNATIONAL SETTLEMENTS
dc.subject	INTERNATIONAL TRADE
dc.subject	INVESTMENT BANKS
dc.subject	INVESTMENT PORTFOLIO
dc.subject	INVESTMENT RATE
dc.subject	LACK OF TRANSPARENCY
dc.subject	LENDERS
dc.subject	LETTERS OF CREDIT
dc.subject	LEVEL OF DEBT
dc.subject	LEVEL OF RISK
dc.subject	LIABILITY
dc.subject	LIEN
dc.subject	LIENS
dc.subject	LIQUIDATION
dc.subject	LIQUIDITY
dc.subject	LIQUIDITY CRISIS
dc.subject	LOAN
dc.subject	LOAN OBLIGATIONS
dc.subject	LONG-TERM INTEREST
dc.subject	LONG-TERM INTEREST RATES
dc.subject	LONG-TERM MATURITY
dc.subject	MACROECONOMIC MANAGEMENT
dc.subject	MACROECONOMIC POLICIES
dc.subject	MARKET CONFIDENCE
dc.subject	MARKET DISTORTIONS
dc.subject	MARKET INDICES
dc.subject	MARKET PARTICIPANTS
dc.subject	MARKET STABILITY
dc.subject	MATURITY
dc.subject	MICRO-DATA
dc.subject	MONETARY AUTHORITIES
dc.subject	MONETARY FUND
dc.subject	MONETARY POLICY
dc.subject	MONEY MARKET
dc.subject	MONEY MARKETS
dc.subject	MORTGAGE
dc.subject	MORTGAGE LOANS
dc.subject	MORTGAGE MARKET
dc.subject	MORTGAGE OBLIGATIONS
dc.subject	MORTGAGE-BACKED SECURITIES
dc.subject	MORTGAGES
dc.subject	MUTUAL FUNDS
dc.subject	NATIONAL SAVINGS
dc.subject	OIL PRICES
dc.subject	PENSION
dc.subject	PENSION FUNDS
dc.subject	PERSONAL INCOME
dc.subject	POLICY RESPONSE
dc.subject	PRICE MOVEMENTS
dc.subject	PRIVATE EQUITY
dc.subject	PUBLIC DEBT
dc.subject	PUBLIC DEBTS
dc.subject	PUBLIC FINANCES
dc.subject	PURCHASING POWER
dc.subject	REAL EXCHANGE RATE
dc.subject	REAL INTEREST
dc.subject	REAL INTEREST RATES
dc.subject	REMITTANCES
dc.subject	REPAYMENTS
dc.subject	RESERVES
dc.subject	RESIDENTIAL MORTGAGE
dc.subject	RETURN
dc.subject	RISK AVERSION
dc.subject	RISK OF DEFAULT
dc.subject	RISK PROFILE
dc.subject	RISKY ASSETS
dc.subject	SAVINGS RATE
dc.subject	SAVINGS RATES
dc.subject	SECURITIES
dc.subject	SHAREHOLDERS
dc.subject	SHORT-TERM DEBT
dc.subject	SHORT-TERM DEPOSIT
dc.subject	SOVEREIGN DEBT
dc.subject	STOCK MARKET
dc.subject	STOCK MARKET PRICES
dc.subject	STOCK MARKETS
dc.subject	STOCKS
dc.subject	SWAP
dc.subject	TAX
dc.subject	TRADE BALANCE
dc.subject	TRADING
dc.subject	TRANCHES
dc.subject	TRANSACTION
dc.subject	TREASURIES
dc.subject	TREASURY
dc.subject	TREASURY BILL
dc.subject	TREASURY BILLS
dc.subject	TREASURY BONDS
dc.subject	VALUATION
dc.subject	WEALTH EFFECT
dc.subject	WEALTH EFFECTS
dc.title	The Unexpected Global Financial Crisis : Researching Its Root Cause
dc.type	Publications & Research :: Policy Research Working Paper
dc.coverage	The World Region
dc.coverage	The World Region