EconStor >
Asian Development Bank Institute (ADBI), Tokyo >
ADBI Working Paper Series, Asian Development Bank Institute >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/53753
  
Title:America's financial crisis: The end of an era PDF Logo
Authors:Bosworth, Barry
Flaaen, Aaron
Issue Date:2009
Series/Report no.:ADBI working paper series 142
Abstract:This paper reviews research on the origins of the financial crisis of 2008-2009, highlights the key events that triggered a financial panic in September 2008, and summarizes the extraordinary policy actions the United States (US) has taken to ameliorate the crisis. We discuss the proximate causes of the crisis, including the characteristics and growth of the subprime mortgage market, and the distorted incentives and flawed regulatory structure surrounding the secondary market for mortgage-backed securities. We also assess the role of more fundamental macroeconomic determinants of the bubble in US asset prices, most notably low global interest rates attributed to either loose monetary policy or excess global saving. We find that while low global interest rates may have contributed to the boom in housing markets and speculative excesses, the poorly understood innovations and microeconomic distortions of the financial system played a more fundamental role. Finally, the otherwise extraordinary policy response of the US government has been limited by the lack of an effective restructuring of the financial system, and a recovery marked by higher private saving, weak domestic investment, and a large public deficit appears to be unsustainable. Ultimately, the US economy will need to shift about 3% of GDP from domestic consumption to the export sector. This will pose some serious challenges to countries that have come to rely on exports to the US market.
JEL:G01
E65
E66
E69
F40
Document Type:Working Paper
Appears in Collections:ADBI Working Paper Series, Asian Development Bank Institute

Files in This Item:
File Description SizeFormat
613688015.pdf204.68 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/53753

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.