Looking for a Needle in a Haystack: Revisiting the Cross‐country Causes of the 2008–9 Crisis by Bayesian Model Averaging

Abstract

In this paper we explore the cross‐country variation in the output impact of the global financial crisis in 2008–9. We use the extensive dataset of Rose and Spiegel but control for the problems of model uncertainty and outliers by using a variety of Bayesian model averaging techniques. We find first that cross‐country differences in crisis intensity can be explained by macroeconomic vulnerabilities. Second, ignoring model uncertainty can lead to incorrect inferences. Third, international trade linkages do matter.