Crisis, Restructuring and Growth: A Macroeconomic Perspective

This report surveys the major aspects of financial crises and the restructuring and growth process of economies in the aftermath of crises, and discusses possible directions for future research in this area.

The first part of the report reviews the existing literature. The first chapter gives an introduction to the recent global financial crisis starting in 2007 in the United States. Contributing factors include global financial imbalances, monetary and fiscal policy, and liberalization and deregulation of financial markets. The second chapter discusses lessons about financial crises from the interwar years. In particular, it relates events in asset and money markets to problems in the banking sector and the resulting credit crunch. The third chapter reviews the literature on a number of financial crises (banking, currency, twin crises and debt), and documents contributing factors and the typical recovery in the aftermath of a crisis. Chapter four discusses challenges from the financial crises for monetary policy. Partly as a response to earlier policy failures, monetary policy has also used non-conventional instruments to support the recovery of the financial sector.

The second part outlines several directions for future research. These include the role played by the United States and China in adjusting financial imbalances, the importance of understanding the interrelation of financial frictions and business cycles, the evolution of endogenous political preferences and sectoral allocation, and the analysis of jointness and the role of expectations in predicting financial crises.