Économie et Statistique n° 438-439-440 - 2010Aspects of the crisis
From the Financial Crisis to the Economic Crisis
The financial crisis broke out in the U.S. subprime-mortgage market in 2007, gradually spread to all financial markets, and severely impacted growth in the leading advanced countries in 2008-2009. Bearing in mind its magnitude and the resulting uncertainty, we discuss the ability of macroeconomic models estimated on past data to quantify its different transmission channels. We use NiGEM, a multinational macroeconomic model, to quantify the overall impact of the crisis on seven advanced economies and the euro zone as a whole. In 2008 and 2009, Germany was hit by an unusually sharp contraction in world trade, which appears to explain over one-half of the crisis effect measured in 2009. The United Kingdom and the United States seem to have suffered mainly from wealth effects and a sharp contraction in domestic demand. This decline is no doubt partly due to credit tightening. The country hardest hit by the crisis in 2009 appears to be Japan: the foreign-trade contraction was aggravated by the yen's appreciation, and investment overreacted strongly to the drop in economic activity. By contrast, the milder GDP contraction in France in 2009 seems due to an absence of overreactive economic behaviour and a lesser sensitivity to the downtrend in global trade.