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Weathering The Financial Crisis: Good Policy Or Good Luck?

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Executive Summary

The macroeconomic performance of individual countries varied markedly during the 2007 - 09 global financial crisis. While China's growth never dipped below 6% and Australia's worst quarter was no growth, the economies of Japan, Mexico and the United Kingdom suffered annualised GDP contractions of 5 - 10% per quarter for five to seven quarters in a row. The authors exploit this cross-country variation to examine whether a country's macroeconomic performance over this period was the result of pre-crisis policy decisions or just good luck. The answer is a bit of both. Better-performing economies featured a better-capitalised banking sector, lower loan-to-deposit ratios, a current account surplus, high foreign exchange reserves and low levels and growth rates of private sector credit-to-GDP.

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