How resilient and countercyclical the emerging economies during the Global Financial Crisis 2008
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How resilient and countercyclical the emerging economies during the Global Financial Crisis 2008
It's still fresh in our mind how the crisis in 2008 hit the global market. The fall of the Lehman brother, the chaos where the default swap product gains such a high profit! All the many things that only minor from us can understand why. Even though it already looks like a relic, the chaos is one by one to be revealed. And as economic science develops, the lesson converges into belief, and this belief is used to shape the regulation we use nowadays.
There is one exciting paper that I want to share and write here; it's from Prof. Didier and her colleague, that wrote this in 2012. Where there is a couple of point from this research that remains prevail.
Let's write it point by point.
- Even though emerging economies perform better, no country, including emerging economies, can avoid the global functional crisis that originated in the US.
- There is a structural break in how emerging economies responded to the global shock.
- As emerging economies also suffer growth collapse.
- Even though they also suffer but in comparison with the Asian crisis, they perform much better.
| 1 | Emerging economies still can't avoid the global financial crisis that originated in the US |
| 2 | There is a structural break in the way emerging economies responded to the global shock |
| 3 | Emerging economies also suffering growth collapse (relative to the pre-crisis level) |
| 4 | Even though they also suffer from the crisis but they are more resilient in comparison with the previous crisis |
| 5 | They resumed their higher growth much earlier |
| 6 | converged more quickly to their pre-crisis growth trend |
| 7 | Emerging economies did not fall more than developed economies during the global crisis |
| 8 | EE able to conduct countercyclical policies |
| 9 | Ex-ante perspective resilience means that a market has a lower likelihood of being affected by shock |
| 10 | Ex-post perspective of resilience means that a market recovers much after after being affected by an external shock |
| 11 | There are four reasons why emergingeconomiesc perform better |
| 12 | The term growth collapse is the differences in GDP growth in 2009 and 2007 |
| 13 | Growth collapse is larger in EE than in developed economies |
| 14 | The number of tables presented in page 2056 is very nice for comparing the average of advanced and emerging economies |
| 15 | For EE, in January 2009, they already started to recover, so it only takes nine months for them to recover, while foradvancede economies it takes 13 months |
| 16 | For EE, they achieve the pre crisis level by Nov 2009, while in advance by December 2010 |
| 17 | There are two channels where the crisis is distributed |
| 18 | The way of policy in emerging ecnomies |
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Implication on the research
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| 1 | So first try to find the similarity of high performing resilience market | |
| 2 |
Identify which instrument that focus on countercyclical and deepening the local debt instead of outside
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| 3 |
Compare the implementation on this specific instrument and see what is the difference with the group of market that just rely on the high amount of instrument but not on the quality
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Detail of the number above
| 11 | There are four reasons why emerging economic perform better | a. The root of problem is different especially in the financial market, the advance economies has bigger exposure than the EE |
| b. The EE typically growing in higher rate than the developed economies | ||
| c. The international trade where during crisis the inventory in developed economy piled up, as the time goes the inventory decrease and emerging economies can accelerate stabilize the demand and supply by producing more | ||
| d. EE implement more countercylical policy as they learn from the previous experience |
| 14 | The number of table presented in page 2056 is very nice to compare the average of advance and emerging economies | comaprison of credit growth before crisis and before pandemic |
| comparison of credit collpase |
| 17 | There are two channels where the crisis is distributed | The trade channel | The crisis is spread because the drop in demand also followed by drop of the price |
| There are piled of inventory in developed market | |||
| The emerging economies can not sell their product to developed market as the demand in developed market dropped | |||
| The financial channel | The increase in the interest rate in developed market make the movement of money move | ||
| 18 | The way of policy in emerging ecnomies | Fiscal policies | There are enough money to keep the employment in the country |
| Monetary policy | In the previous crisis, emerging economies is forced to raise their interest rate, as they dont want the investment move to neighbour country | ||
| However, the more flexible currency, create a ppower that goverment confidence enough to not raise the interest rate during the global financial crisis | |||
| Prudential policy | The preparation of countercylical policy, as they learn from previous crisis | ||
| In the previous crisis, majority of the debt is in foreign currency, therefore there is debt deflation due to currency depreciation, but now they change, the company more putting allocation their asset in foregin currency, so if they have currency depreciation it create a balance | |||
| There is more movement in deepening the debt from local market instead of outside, so when there is currency depreciation, the market is feeling save enough |
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