Abstract
The paper analyzes the stylized features of historical crisis episodes for 21 developing Asian economies over 1961–2007. The paper finds that while there is substantial diversity, on average, recessions and financial downturns are more frequent, longer lasting, and more severe in Asia than in the Organisation for Economic Co-operation and Development countries. The paper also finds that the likelihood and severity of a recession tends to increase when it is associated with credit crunches or stock market crashes. Severe financial downturns or recessions in the global economy are often coupled with financial crises or recessions in Asia. In view of the current global crisis and severe financial downturns, Asian economies are expected to experience a severe recession in 2009.
Highlights
The global financial crisis that originated in the United States (US) subprime mortgage market is pummeling the real economy
For OECD, the proportion of countries in stock price declines reaches as high as 100% on a few occasions and below 20% on several others
We find that the likelihood and severity of a recession tends to increase when it is associated with financial crises, such as credit crunches and stock market crashes
Summary
The global financial crisis that originated in the United States (US) subprime mortgage market is pummeling the real economy. A more protracted recession and high volatility in G3 financial markets would have severe spillover effects on Asia’s economic outlook. The purpose of this paper is to empirically examine historical crisis episodes of Asian economies to derive implications of the current global crisis for Asia. We first investigate basic features of crisis episodes for 21 developing Asian economies during 1961–2007, providing stylized facts on movements of key macroeconomic and financial variables around crisis episodes. We consider how Asia’s crisis episodes link to global crises to derive implications of the current global crisis on Asia. We know of no systematic empirical research focusing on the stylized facts of economic and financial crises in developing Asian economies, and the links of these crises with global financial crises and recessions. The paper is organized as follows: Section II describes the data and methodology in identifying crises; Section III provides various stylized facts on macroeconomic and financial crises in Asia; Section IV examines impacts of the US/global crises on Asia, and Section V concludes the paper
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