The Global Economic Recovery 10 Years After the 2008 Financial Crisis

IMF Working Papers, April 26, 2019

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Canonical URL: The Global Economic Recovery 10 Years After the 2008 Financial Crisis

Authors: Wenjie Chen, Mico Mrkaic, Malhar S Nabar
Publication date: April 26, 2019
Paper type: IMF Working Papers, Working Paper No. 2019/083
Objective: Take stock of the global economic recovery a decade after the 2008 financial crisis, assessing persistence of output losses, channels, and the role of policy choices.

Output losses after the crisis appear to be persistent, irrespective of whether a country suffered a banking crisis in 2007–08.
Sluggish investment was a key channel through which these losses registered.
Long-lasting capital and total factor productivity shortfalls relative to precrisis trends accompanied the output losses.
Countries with greater financial vulnerabilities in the precrisis years suffered larger output losses after the crisis.
Countries with stronger precrisis fiscal positions experienced smaller losses.
Countries with more flexible exchange rate regimes experienced smaller losses.
Unprecedented and exceptional policy actions taken after the crisis helped mitigate countries’ postcrisis output losses.

Investment: Sluggish investment is identified as a principal channel transmitting the crisis into persistent output losses.
Capital and productivity: Persistent shortfalls in capital and total factor productivity relative to precrisis trends reinforced weak output performance.
Financial vulnerabilities: Precrisis financial fragilities amplified postcrisis output losses, underscoring macrofinancial linkages.

Macroprudential policies and supervision: The analysis underscores the importance of macroprudential policies and effective supervision, given that greater precrisis financial vulnerabilities led to larger output losses.
Fiscal stance: Stronger precrisis fiscal positions are associated with smaller postcrisis output losses, highlighting the role of fiscal buffers.
Exchange rate flexibility: More flexible exchange rate regimes are associated with smaller losses, suggesting exchange rate regime choice mattered for recovery.
Crisis-era policy actions: Unprecedented and exceptional policy actions after the crisis mitigated output losses—implying that decisive policy responses can reduce long-run damages.