Literature Review on the global financial crisis
(Blankbenburg and Gabriel, 2009) have explained the onset of global financial crisis and some reasons behind the crisis. The research show that global financial assets have increased substantially. They also state in the paper that outstanding debt of US financial sector has risen from 20 % of GDP in 1980 to 116 % of GDP in 2007 (FED, 2009). The increase in outstanding debt is also associated with writing off the debt at a large scale as US financial sector has already written down $ 1 trillion. According to the paper, IMF reports that world’s economy will slowdown further. It also says that International Labour Organization has reported that 30 million have lost their employment.
Crotty (2009) has discussed the causes behind the global economic crisis. As he explained in the article that recent financial crisis is one of the worst crises after the Great Depression of 1930’s. Furthermore, Crotty (2009) explains the financial deregulation started in 1970’s and the newly evolved financial markets. He puts blame on the financial markets and the government for these financial crises. According to the article government announces bail-out packages for financial institutions in order to curtail crises and subsequently bail-out packages result in growth of financial markets. Financial markets are becoming bigger and bigger and so on the bail-out packages. The article moreover discusses the structural loopholes in our financial systems which are considered to be the leading cause of financial and economic crisis. At the end, paper suggests that enormous growth of financial markets should be curtailed and reversed as value of financial assets is very large as compared to real economy and real economy cannot generate cash flows for such financial assets.
(Taylor, 2008) has put the entire blame of global financial crisis on the loose monetary policy of Federal Reserve prior to the crisis. Moreover, paper also blames the governments whose actions prolonged the global financial crisis. It also reveals support to certain financial institutions by the governments further worsened the global financial crisis. Paper proposes that international financial architecture should be rebuilt. Resaerch emphasizes that policy interest rates should be kept on track.
(Carmassi, Gros and Micossi, 2009) have identified the major causes of the global financial crisis. The paper describes the reasons behind global financial crisis and also discuses some initiatives to be taken for alleviation of the problem. The paper considers the loose monetary policy as major culprit for the crisis. The paper also explains the flaws in regulatory system. The prevailing regulatory system time and again allowed excessive leverage and maturity transformation by the banking sector of US and Europe. Moreover, paper says that monetary policy should consider the macro-prudential policies of financial stability
(Allen and Carletti, 2009) have also researched on the global financial crisis. They have identified the causes; ramifications associated with the crisis and have put forth some suggestions. Research carried out shows that there were numerous reasons other than the mortgage crisis. According to the research, there were real state bubbles developed in different countries including the United States. The real estate bubble busted resulting in financial crisis. Loose monetary policy of Federal Reserve was the leading cause of real estate bubble. The second reason of the crisis was the prevailing global imbalances.
The research depicts the effects of the crisis as evident from the bankruptcy of financial giants. The paper also heavily criticizes the policies of IMF and World Bank.
(Claessens, Igan, Dell’ riccia and Laeven, 2010) have discussed the policy implications from the global financial crisis. The research carried out depicts the emergence of global financial crisis. Furthermore, it tries to explain the crisis with respect to international linkages. It shows that crisis proliferated through international linkages. It also shows that countries directly related to United States through trade and other means were the one which were highly affected. Research work also exhibits that crisis became severe due to new financial instruments and intermediaries and interconnections. As explained earlier in research, European banks had direct exposure to US assets and thus the problems faced by US banks further trickled down to European banks. Countries have been grouped according to the dates in which the countries entered into recession and timeline showing the events of crisis have been presented in the paper. Econometric and regressions models have been used in the research. Mean and standard deviations of performance indicators which are the severity of income losses and change in the average growth rate show that Group I countries (United States, Ireland, Iceland, Estonia and Latvia) suffered the most due to financial crisis. The research paper has also revealed the flaws with the traditional macroeconomic policy measures. The paper in conclusion emphasizes the need for coordination between macroeconomic and regulatory policies.
(Lenza, Pill and reichlin, 2010) have discussed the role of three central banks and the policies undertaken by them for stabilization of global financial crisis. The paper analyses the policy responses to mitigate the impact of global financial crisis of European Central Bank, Bank of England and Federal Reserve of United States responses to mitigate the impact of global financial crisis. The paper had a special focus on the monetary policy enacted by Central Banks of these regions. The paper shows that quantitative measures as well as non-standard measures were taken to ease the pressure of the crisis. Non-standard measures actually changed the composition of balance sheet of the central banks. They also say that non-standard measures are very useful and can be of equal importance. Paper concludes that non-standard measures adopted by three central banks have been successful in stabilizing the economy and the financial sector.
(Musleh-ud-Din, 2009) has worked on the global financial crisis. Paper says that Pakistan was suffering from acute macroeconomic imbalances at the onset of global financial crisis. Global Financial Crisis further deteriorated the macroeconomic condition of the country. A sharp decline was witnessed in economic growth According to the research carried out, exports declined by 6.4 % in 2009, Foreign direct investment came down from $5410 million in 2008 to $3720 million in 2009. Fiscal and Current Account deficit reached to 7.4 & and 8.4 % of GDP respectively in 2008. Worker’s remittances also came down. Pakistan lost 3 million jobs in different sectors of the economy. Paper also explains the role of shock absorbers in stabilization of economic crises. The researcher has justified the stance of Pakistani government to adopt a concretionary fiscal policy as there is no room for counter-cyclical fiscal policy. Paper also talks about the high inflation and the tight monetary policy adopted by State Bank of Pakistan. The paper concludes suggesting that tax to GDP ratio should be increased and public sector investment be increased. Paper says that there is dire need for coordination between fiscal and monetary policies. Research also suggests that current account deficit should be maintained at a considerable level because high current account deficit hinders economic growth. Author also recommends that development policies such as technological advancement, human resource development and export diversification should be adopted for stabilizing the global financial crisis
(Usman, 2010) has also worked on the global financial crisis indentifying its impact on Pakistan. The paper explains the repercussions of the global financial crisis. According to the research, global trends which led to the crisis are inflation, trade, high commodity prices and unemployment. Paper also quotes Bank of England report. Bank of England reported that world’s financial firms have lost $2.8 trillion due to global financial crisis. It is also reported that US passed a bail-out package of $700 billion while EU had a bail-out package of $2.3 trillion. (Usman, 2010) has also exposed global financial crisis impact on developing countries. Some of the similar effects on economies of developed countries include weaker export revenues, lower investment, unemployment and current account and balance of payment problems. Social effects indentified are increase in poverty and more crime. Paper draws the conclusion that tight monetary policy should be pursued. It says that cuts should be made in expenditure and public sector development programmes be started. It also says that Government should intensify public private partnerships which would increase economic growth
Need an essay? You can buy essay help from us today!