Jesús Crespo Cuaresma (WU, WIC, IIASA, WIFO) and Martin Feldkircher (OeNB): Drivers of output loss during the 2008-09 crisis: A focus on emerging Europe
We study empirically the role that initial conditions play in explaining crosscountry heterogeneity in real output loss during the recent global financial crisis. We use a global sample covering over 150 countries of the world and focus on the differential behaviour of emerging economies in Europe in terms of the determinants of crisis. We find that differences in crisis severity in emerging Europe can only be partly explained using the factors that appear to be important for the global sample. Our results for emerging economies in Europe indicate that growth above potential before the crisis coupled with external disequilibria as well as financial openess have been particularly important as mechanisms which magnified the severity of the crisis in terms of output loss. We also find some evidence that pre-crisis FDI inflows softened the negative real output effects of the crisis in the region.
Keywords: Financial crisis, cross-country analysis, Bayesian model averaging.
JEL Classifications: C11, C15, E01, O47.
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