The Unexpected Global Financial Crisis : Researching Its Root Cause
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...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | 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 http://hdl.handle.net/10986/3222 |
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okr-10986-3222 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ASSET MANAGER ASSET PRICE ASSET PRICES ASSET-LIABILITY MISMATCH BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BALANCE OF PAYMENTS CRISIS BALANCE SHEET BANK LENDING BANKING INSTITUTIONS BANKING SYSTEM BANKRUPTCY BORROWER BORROWING COSTS BUDGET DEFICIT BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MARKETS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET COMMODITY PRICE COMMODITY PRICES CONSUMER CREDIT CONSUMER GOODS CONSUMPTION EXPENDITURES CORPORATE SAVING CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT MARKET CREDIT MARKETS CREDITOR CREDITORS CURRENCY CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT BURDENS DEBT CRISIS DEBT OBLIGATIONS DEFAULT RISK DEFAULTS DEFICITS DEPOSIT ACCOUNTS DEPOSIT INSURANCE DEPOSITS DERIVATIVE DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DISCLOSURE OF INFORMATION DURABLE DURABLE GOODS ECONOMIC POLICIES EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUITIES EQUITY FUND EQUITY INVESTMENT EQUITY MARKET EQUITY MARKETS EXCESS LIQUIDITY EXCHANGE COMMISSION EXCHANGE RATE EXPORT COMPETITIVENESS EXPORT SHARE EXPORTERS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSETS FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FLOWS FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SYSTEM FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FIXED INCOME FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL ECONOMY GLOBAL TRADE GLOBALIZATION GOVERNMENT BUDGET GOVERNMENT POLICY HEDGE FUND HEDGE FUNDS HOME EQUITY HOME EQUITY LOAN HOME EQUITY LOANS HOME LOAN HOME MORTGAGE HOUSEHOLD INCOME HOUSEHOLD WEALTH INCOME INSTRUMENTS INFLATION INFLATIONARY EXPECTATIONS INFLATIONARY PRESSURES INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICY INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL MARKETS INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANKS INVESTMENT PORTFOLIO INVESTMENT RATE LACK OF TRANSPARENCY LENDERS LETTERS OF CREDIT LEVEL OF DEBT LEVEL OF RISK LIABILITY LIEN LIENS LIQUIDATION LIQUIDITY LIQUIDITY CRISIS LOAN LOAN OBLIGATIONS LONG-TERM INTEREST LONG-TERM INTEREST RATES LONG-TERM MATURITY MACROECONOMIC MANAGEMENT MACROECONOMIC POLICIES MARKET CONFIDENCE MARKET DISTORTIONS MARKET INDICES MARKET PARTICIPANTS MARKET STABILITY MATURITY MICRO-DATA MONETARY AUTHORITIES MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKETS MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE OBLIGATIONS MORTGAGE-BACKED SECURITIES MORTGAGES MUTUAL FUNDS NATIONAL SAVINGS OIL PRICES PENSION PENSION FUNDS PERSONAL INCOME POLICY RESPONSE PRICE MOVEMENTS PRIVATE EQUITY PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCES PURCHASING POWER REAL EXCHANGE RATE REAL INTEREST REAL INTEREST RATES REMITTANCES REPAYMENTS RESERVES RESIDENTIAL MORTGAGE RETURN RISK AVERSION RISK OF DEFAULT RISK PROFILE RISKY ASSETS SAVINGS RATE SAVINGS RATES SECURITIES SHAREHOLDERS SHORT-TERM DEBT SHORT-TERM DEPOSIT SOVEREIGN DEBT STOCK MARKET STOCK MARKET PRICES STOCK MARKETS STOCKS SWAP TAX TRADE BALANCE TRADING TRANCHES TRANSACTION TREASURIES TREASURY TREASURY BILL TREASURY BILLS TREASURY BONDS VALUATION WEALTH EFFECT WEALTH EFFECTS |
| spellingShingle |
ASSET MANAGER ASSET PRICE ASSET PRICES ASSET-LIABILITY MISMATCH BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BALANCE OF PAYMENTS CRISIS BALANCE SHEET BANK LENDING BANKING INSTITUTIONS BANKING SYSTEM BANKRUPTCY BORROWER BORROWING COSTS BUDGET DEFICIT BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MARKETS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET COMMODITY PRICE COMMODITY PRICES CONSUMER CREDIT CONSUMER GOODS CONSUMPTION EXPENDITURES CORPORATE SAVING CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT MARKET CREDIT MARKETS CREDITOR CREDITORS CURRENCY CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT BURDENS DEBT CRISIS DEBT OBLIGATIONS DEFAULT RISK DEFAULTS DEFICITS DEPOSIT ACCOUNTS DEPOSIT INSURANCE DEPOSITS DERIVATIVE DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DISCLOSURE OF INFORMATION DURABLE DURABLE GOODS ECONOMIC POLICIES EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUITIES EQUITY FUND EQUITY INVESTMENT EQUITY MARKET EQUITY MARKETS EXCESS LIQUIDITY EXCHANGE COMMISSION EXCHANGE RATE EXPORT COMPETITIVENESS EXPORT SHARE EXPORTERS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSETS FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FLOWS FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SYSTEM FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FIXED INCOME FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL ECONOMY GLOBAL TRADE GLOBALIZATION GOVERNMENT BUDGET GOVERNMENT POLICY HEDGE FUND HEDGE FUNDS HOME EQUITY HOME EQUITY LOAN HOME EQUITY LOANS HOME LOAN HOME MORTGAGE HOUSEHOLD INCOME HOUSEHOLD WEALTH INCOME INSTRUMENTS INFLATION INFLATIONARY EXPECTATIONS INFLATIONARY PRESSURES INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICY INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL MARKETS INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANKS INVESTMENT PORTFOLIO INVESTMENT RATE LACK OF TRANSPARENCY LENDERS LETTERS OF CREDIT LEVEL OF DEBT LEVEL OF RISK LIABILITY LIEN LIENS LIQUIDATION LIQUIDITY LIQUIDITY CRISIS LOAN LOAN OBLIGATIONS LONG-TERM INTEREST LONG-TERM INTEREST RATES LONG-TERM MATURITY MACROECONOMIC MANAGEMENT MACROECONOMIC POLICIES MARKET CONFIDENCE MARKET DISTORTIONS MARKET INDICES MARKET PARTICIPANTS MARKET STABILITY MATURITY MICRO-DATA MONETARY AUTHORITIES MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKETS MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE OBLIGATIONS MORTGAGE-BACKED SECURITIES MORTGAGES MUTUAL FUNDS NATIONAL SAVINGS OIL PRICES PENSION PENSION FUNDS PERSONAL INCOME POLICY RESPONSE PRICE MOVEMENTS PRIVATE EQUITY PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCES PURCHASING POWER REAL EXCHANGE RATE REAL INTEREST REAL INTEREST RATES REMITTANCES REPAYMENTS RESERVES RESIDENTIAL MORTGAGE RETURN RISK AVERSION RISK OF DEFAULT RISK PROFILE RISKY ASSETS SAVINGS RATE SAVINGS RATES SECURITIES SHAREHOLDERS SHORT-TERM DEBT SHORT-TERM DEPOSIT SOVEREIGN DEBT STOCK MARKET STOCK MARKET PRICES STOCK MARKETS STOCKS SWAP TAX TRADE BALANCE TRADING TRANCHES TRANSACTION TREASURIES TREASURY TREASURY BILL TREASURY BILLS TREASURY BONDS VALUATION WEALTH EFFECT WEALTH EFFECTS Lin, Justin Yifu Treichel, Volker The Unexpected Global Financial Crisis : Researching Its Root Cause |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5937 |
| 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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lin, Justin Yifu Treichel, Volker |
| author_facet |
Lin, Justin Yifu Treichel, Volker |
| author_sort |
Lin, Justin Yifu |
| title |
The Unexpected Global Financial Crisis : Researching Its Root Cause |
| title_short |
The Unexpected Global Financial Crisis : Researching Its Root Cause |
| title_full |
The Unexpected Global Financial Crisis : Researching Its Root Cause |
| title_fullStr |
The Unexpected Global Financial Crisis : Researching Its Root Cause |
| title_full_unstemmed |
The Unexpected Global Financial Crisis : Researching Its Root Cause |
| title_sort |
unexpected global financial crisis : researching its root cause |
| publishDate |
2012 |
| url |
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 http://hdl.handle.net/10986/3222 |
| _version_ |
1764386629636587520 |
| spelling |
okr-10986-32222021-04-23T14:02:08Z The Unexpected Global Financial Crisis : Researching Its Root Cause Lin, Justin Yifu Treichel, Volker ASSET MANAGER ASSET PRICE ASSET PRICES ASSET-LIABILITY MISMATCH BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BALANCE OF PAYMENTS CRISIS BALANCE SHEET BANK LENDING BANKING INSTITUTIONS BANKING SYSTEM BANKRUPTCY BORROWER BORROWING COSTS BUDGET DEFICIT BUDGET SURPLUSES BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MARKETS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET COMMODITY PRICE COMMODITY PRICES CONSUMER CREDIT CONSUMER GOODS CONSUMPTION EXPENDITURES CORPORATE SAVING CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT MARKET CREDIT MARKETS CREDITOR CREDITORS CURRENCY CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT BURDENS DEBT CRISIS DEBT OBLIGATIONS DEFAULT RISK DEFAULTS DEFICITS DEPOSIT ACCOUNTS DEPOSIT INSURANCE DEPOSITS DERIVATIVE DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DISCLOSURE OF INFORMATION DURABLE DURABLE GOODS ECONOMIC POLICIES EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUITIES EQUITY FUND EQUITY INVESTMENT EQUITY MARKET EQUITY MARKETS EXCESS LIQUIDITY EXCHANGE COMMISSION EXCHANGE RATE EXPORT COMPETITIVENESS EXPORT SHARE EXPORTERS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSETS FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FLOWS FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SYSTEM FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FIXED INCOME FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL ECONOMY GLOBAL TRADE GLOBALIZATION GOVERNMENT BUDGET GOVERNMENT POLICY HEDGE FUND HEDGE FUNDS HOME EQUITY HOME EQUITY LOAN HOME EQUITY LOANS HOME LOAN HOME MORTGAGE HOUSEHOLD INCOME HOUSEHOLD WEALTH INCOME INSTRUMENTS INFLATION INFLATIONARY EXPECTATIONS INFLATIONARY PRESSURES INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICY INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL MARKETS INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANKS INVESTMENT PORTFOLIO INVESTMENT RATE LACK OF TRANSPARENCY LENDERS LETTERS OF CREDIT LEVEL OF DEBT LEVEL OF RISK LIABILITY LIEN LIENS LIQUIDATION LIQUIDITY LIQUIDITY CRISIS LOAN LOAN OBLIGATIONS LONG-TERM INTEREST LONG-TERM INTEREST RATES LONG-TERM MATURITY MACROECONOMIC MANAGEMENT MACROECONOMIC POLICIES MARKET CONFIDENCE MARKET DISTORTIONS MARKET INDICES MARKET PARTICIPANTS MARKET STABILITY MATURITY MICRO-DATA MONETARY AUTHORITIES MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKETS MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE OBLIGATIONS MORTGAGE-BACKED SECURITIES MORTGAGES MUTUAL FUNDS NATIONAL SAVINGS OIL PRICES PENSION PENSION FUNDS PERSONAL INCOME POLICY RESPONSE PRICE MOVEMENTS PRIVATE EQUITY PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCES PURCHASING POWER REAL EXCHANGE RATE REAL INTEREST REAL INTEREST RATES REMITTANCES REPAYMENTS RESERVES RESIDENTIAL MORTGAGE RETURN RISK AVERSION RISK OF DEFAULT RISK PROFILE RISKY ASSETS SAVINGS RATE SAVINGS RATES SECURITIES SHAREHOLDERS SHORT-TERM DEBT SHORT-TERM DEPOSIT SOVEREIGN DEBT STOCK MARKET STOCK MARKET PRICES STOCK MARKETS STOCKS SWAP TAX TRADE BALANCE TRADING TRANCHES TRANSACTION TREASURIES TREASURY TREASURY BILL TREASURY BILLS TREASURY BONDS VALUATION WEALTH EFFECT WEALTH EFFECTS 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. 2012-03-19T17:28:31Z 2012-03-19T17:28:31Z 2012-01-01 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 http://hdl.handle.net/10986/3222 English Policy Research working paper ; no. WPS 5937 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |