SITE Working Paper Series
Crisis Prevention and Management - What Worked in the 2008/2009 Crisis?
Abstract: This paper takes a systematic look at the economic impact
of the crisis that started in earnest in the fall of 2008 across countries
and regions. Despite warnings of growing domestic and external imbalances
in many countries years ahead of the crisis, the massive impact of the
crisis came as a surprise to most. By correlating economic performance in
the crisis with an extensive set of early warning, country insurance, and
policy indicators, this paper provides some lessons on crisis prevention
and management for the future. Although significant efforts have been made
to develop robust early warnings systems, the paper shows the mixed success
of some commonly analyzed indicators in predicting economic outcomes in
this crisis. The only robust early warning indicator was increases in real
estate prices while international reserves seem to have insured against the
worst crisis outcomes on average. However, much work on building a robust
early warning system remains and the analytical and empirical challenges in
this area are substantial. The issues confronting early warning systems are
also relevant to the more recent field of macro prudential supervision and
regulation. Nevertheless, the cost of crises is massive and preventing
future ones with better regulation, policies and supervision based on solid
research must be a top priority among policy makers and academics alike.
Keywords: Economic crisis; crisis prevention; early warning indicators; (follow links to similar papers)
JEL-Codes: E66; (follow links to similar papers)
35 pages, February 15, 2012
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