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Financial Globalisation and the Crisis

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Abstract

The global financial crisis provides an important testing ground for the financial globalisation model. We ask three questions. First, did financial globalisation materially contribute to the origination of the global financial crisis? Second, once the crisis occurred, how did financial globalisation affect the incidence and propagation of the crisis across different countries? Third, how has financial globalisation affected the management of the crisis at national and international levels?

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Notes

  1. Of course, a longer historical perspective provides major examples of international financial crises also affecting advanced economies (see, amongst many others, Eichengreen 1991 and Obstfeld and Taylor 2004).

  2. Following Lane and Milesi-Ferretti (2011b, 2012), we drop very small countries with total GDP less than 10 billion dollars.

  3. See, amongst others, Lane and Milesi-Ferretti (2009); Balli et al. (2012); Curcuru et al. (2012); Gourinchas et al. (2012).

  4. By way of counter-example, one of the main Irish banks (Bank of Ireland) was able to raise foreign private-sector equity as part of its recapitalisation programme only after the quality of its loan books had been subjected to a rigorous granular stress test that was managed by an external agency.

  5. Of course, international bank recapitalisation would have to be accompanied by parallel international regulatory control of such banks.

  6. As quantified by Chen et al. (2012), the importance of extra-area trade for the main deficit countries means that a decline in the external value of the euro can also play an important role in the adjustment of broader trade-weighted measures of real exchange rates.

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Authors and Affiliations

  1. Trinity College Dublin and CEPR, Dublin, Ireland

    Philip R. Lane

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Correspondence to Philip R. Lane.

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Prepared for the 11th BIS Annual Conference on “The Future of Financial Globalisation,” Lucerne, June 21st–22nd 2012. I thank Michael Curran, Michael O’Grady and Clemens Struck for diligent research assistance. I am grateful to Dani Rodrik and the conference participants for helpful comments. Email: plane@tcd.ie. Tel: +353 1 896 2259. Postal Address: Economics Department, Trinity College Dublin, Dublin 2, Ireland.

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Lane, P.R. Financial Globalisation and the Crisis. Open Econ Rev 24, 555–580 (2013). https://doi.org/10.1007/s11079-012-9266-0

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