IDEAS home Printed from https://ideas.repec.org/a/bla/buecrs/v75y2023i1p40-64.html
   My bibliography  Save this article

Transmission of the 2007–2008 financial crisis in advanced countries of the European Union

Author

Listed:
  • Kamila Tomczak

Abstract

The aim of this paper is to identify the main factors responsible for the 2007–2008 crisis development and transmission across the 10 developed European Union (EU) countries. In order to achieve this objective, trade and financial linkages, crisis contagion from the United States and EU countries and countries' internal and external economic vulnerabilities are examined. The results of logistic regression model covering the period from 2002 to 2012 presented in this paper indicate that the transmission of the crisis occurred through contagion from the United States but also from other EU countries. Additionally, the empirical results confirm that high inflation, a decrease in the exchange rate, and a decrease in the US long‐term interest rates increased the probability of the 2007–2008 financial crisis.

Suggested Citation

  • Kamila Tomczak, 2023. "Transmission of the 2007–2008 financial crisis in advanced countries of the European Union," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 40-64, January.
    • Handle: RePEc:bla:buecrs:v:75:y:2023:i:1:p:40-64
    DOI: 10.1111/boer.12338
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/boer.12338
    Download Restriction: no
    File URL: https://libkey.io/10.1111/boer.12338?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jürgen Von Hagen & Tai‐Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, August.
    2. Bystrom, Hans N. E., 2004. "The market's view on the probability of banking sector failure: cross-country comparisons," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(5), pages 419-438, December.
    3. Duprey, Thibaut & Klaus, Benjamin & Peltonen, Tuomas, 2017. "Dating systemic financial stress episodes in the EU countries," Journal of Financial Stability, Elsevier, vol. 32(C), pages 30-56.
    4. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    5. Pesaran, M. Hashem & Pick, Andreas, 2007. "Econometric issues in the analysis of contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1245-1277, April.
    6. Yamamoto, Shugo, 2014. "Transmission of US financial and trade shocks to Asian economies: Implications for spillover of the 2007–2009 US financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 88-103.
    7. Forbes, Kristin J. & Chinn, Menzie David, 2003. "A Decomposition Of Global Linkages In Financial Markets Over Time," Santa Cruz Department of Economics, Working Paper Series qt4391b5w7, Department of Economics, UC Santa Cruz.
    8. Longstaff, Francis A., 2010. "The subprime credit crisis and contagion in financial markets," Journal of Financial Economics, Elsevier, vol. 97(3), pages 436-450, September.
    9. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    10. Mr. Subir Lall & Mr. Roberto Cardarelli & Mr. Selim A Elekdag, 2009. "Financial Stress, Downturns, and Recoveries," IMF Working Papers 2009/100, International Monetary Fund.
    11. Dungey, Mardi & Milunovich, George & Thorp, Susan, 2010. "Unobservable shocks as carriers of contagion," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1008-1021, May.
    12. Shikimi, Masayo & Yamada, Kazuo, 2019. "Trade and financial channels as the transmission mechanism of the financial crisis," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 364-381.
    13. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," The World Bank Economic Review, World Bank, vol. 13(2), pages 379-408, May.
    14. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 9-62.
    15. Lestano & Jacobs, Jan & Kuper, Gerard H., 2003. "Indicators of financial crises do work! : an early-warning system for six Asian countries," CCSO Working Papers 200313, University of Groningen, CCSO Centre for Economic Research.
    16. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2012. "Interest rate co-movements, global factors and the long end of the term spread," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 183-192.
    17. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
    18. Apergis, Nicholas & Christou, Christina & Kynigakis, Iason, 2019. "Contagion across US and European financial markets: Evidence from the CDS markets," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 1-12.
    19. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    20. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
    21. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
    22. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    23. Chaudron, Raymond & de Haan, Jakob, 2014. "Dating banking crises using incidence and size of bank failures: Four crises reconsidered," Journal of Financial Stability, Elsevier, vol. 15(C), pages 63-75.
    24. Guo, Feng & Chen, Carl R. & Huang, Ying Sophie, 2011. "Markets contagion during financial crisis: A regime-switching approach," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 95-109, January.
    25. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 1-5.
    26. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    27. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
    28. repec:dgr:rugccs:200313 is not listed on IDEAS
    29. Velloso, Helvia & Bustillo, Inés, 2002. "United States interest rates, Latin American debt and financial contagion," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    30. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
    31. Dungey, Mardi & Milunovich, George & Thorp, Susan & Yang, Minxian, 2015. "Endogenous crisis dating and contagion using smooth transition structural GARCH," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 71-79.
    32. Kauko, Karlo, 2012. "External deficits and non-performing loans in the recent financial crisis," Economics Letters, Elsevier, vol. 115(2), pages 196-199.
    33. Elke Hanschel & Pierre Monnin, 2005. "Measuring and forecasting stress in the banking sector: evidence from Switzerland," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 431-49, Bank for International Settlements.
    34. Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-46, January.
    35. Moshirian, Fariborz & Wu, Qiongbing, 2009. "Banking industry volatility and banking crises," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 351-370, April.
    36. Mr. Stephan Danninger & Ms. Irina Tytell & Mr. Ravi Balakrishnan & Mr. Selim A Elekdag, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 2009/133, International Monetary Fund.
    37. Park, Cyn-Young & Shin, Kwanho, 2020. "Contagion through National and Regional Exposures to Foreign Banks during the Global Financial Crisis," Journal of Financial Stability, Elsevier, vol. 46(C).
    38. Kazi, Irfan Akbar & Wagan, Hakimzadi & Akbar, Farhan, 2013. "The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries," Economic Modelling, Elsevier, vol. 30(C), pages 90-116.
    39. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 571-608, September.
    40. Mr. Fabian Valencia & Mr. Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 2008/224, International Monetary Fund.
    41. Kannan, Prakash & Kohler-Geib, Fritzi, 2009. "The uncertainty channel of contagion," Policy Research Working Paper Series 4995, The World Bank.
    42. BenMim, Imen & BenSaïda, Ahmed, 2019. "Financial contagion across major stock markets: A study during crisis episodes," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 187-201.
    43. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, vol. 2(3), pages 243-265, October.
    44. Michaelides, Panayotis G. & Papageorgiou, Theofanis, 2012. "On the transmission of economic fluctuations from the USA to EU-15 (1960–2011)," Journal of Economics and Business, Elsevier, vol. 64(6), pages 427-438.
    45. Paulo Horta & Carlos Mendes & Isabel Vieira, 2010. "Contagion effects of the subprime crisis in the European NYSE Euronext markets," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 9(2), pages 115-140, August.
    46. Sanchis, A. & Segovia, M.J. & Gil, J.A. & Heras, A. & Vilar, J.L., 2007. "Rough Sets and the role of the monetary policy in financial stability (macroeconomic problem) and the prediction of insolvency in insurance sector (microeconomic problem)," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1554-1573, September.
    47. Hali J. Edison, 2003. "Do indicators of financial crises work? An evaluation of an early warning system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
    48. Wong, Jim & Wong, Tak-Chuen & Leung, Phyllis, 2010. "Predicting banking distress in the EMEAP economies," Journal of Financial Stability, Elsevier, vol. 6(3), pages 169-179, September.
    49. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
    50. Caramazza, Francesco & Ricci, Luca & Salgado, Ranil, 2004. "International financial contagion in currency crises," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 51-70, February.
    51. Daly, Kevin & Batten, Jonathan A. & Mishra, Anil V. & Choudhury, Tonmoy, 2019. "Contagion risk in global banking sector," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 63(C).
    52. Davis, E. Philip & Karim, Dilruba, 2008. "Comparing early warning systems for banking crises," Journal of Financial Stability, Elsevier, vol. 4(2), pages 89-120, June.
    53. Duttagupta, Rupa & Cashin, Paul, 2011. "Anatomy of banking crises in developing and emerging market countries," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 354-376, March.
    54. Morales, Lucía & Andreosso-O'Callaghan, Bernadette, 2014. "The global financial crisis: World market or regional contagion effects?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 108-131.
    55. Mr. Paul R Masson, 1998. "Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria," IMF Working Papers 1998/142, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kauko, Karlo, 2014. "How to foresee banking crises? A survey of the empirical literature," Economic Systems, Elsevier, vol. 38(3), pages 289-308.
    2. Ravi Balakrishnan & Stephan Danninger & Selim Elekdag & Irina Tytell, 2011. "The Transmission of Financial Stress from Advanced to Emerging Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 40-68, May.
    3. Mr. Stephan Danninger & Ms. Irina Tytell & Mr. Ravi Balakrishnan & Mr. Selim A Elekdag, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 2009/133, International Monetary Fund.
    4. Hamdaoui, Mekki, 2016. "Are systemic banking crises in developed and developing countries predictable?," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 114-138.
    5. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    6. Mohammad Karimi & Marcel‐Cristian Voia, 2019. "Empirics of currency crises: A duration analysis approach," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 428-449, July.
    7. Jiang, Hai & Tang, Shenfeng & Li, Lifang & Xu, Fangming & Di, Qian, 2022. "Re-examining the Contagion Channels of Global Financial Crises: Evidence from the Twelve Years since the US Subprime Crisis," Research in International Business and Finance, Elsevier, vol. 60(C).
    8. Apostolakis, George & Papadopoulos, Athanasios P., 2014. "Financial stress spillovers in advanced economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 128-149.
    9. Mardi Dungey & Renee Fry & Brenda Gonzalez-Hermosillo & Vance Martin, 2005. "Empirical modelling of contagion: a review of methodologies," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 9-24.
    10. Truong, Chi & Sheen, Jeffrey & Trück, Stefan & Villafuerte, James, 2022. "Early warning systems using dynamic factor models: An application to Asian economies," Journal of Financial Stability, Elsevier, vol. 58(C).
    11. Ari, Ali, 2012. "Early warning systems for currency crises: The Turkish case," Economic Systems, Elsevier, vol. 36(3), pages 391-410.
    12. Andrea Eross & Andrew Urquhart & Simon Wolfe, 2019. "Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank markets," The European Journal of Finance, Taylor & Francis Journals, vol. 25(1), pages 35-53, January.
    13. Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
    14. Dungey, Mardi & Jacobs, Jan P.A.M. & Lestano,, 2015. "The internationalisation of financial crises: Banking and currency crises 1883–2008," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 29-47.
    15. Pami Dua & Divya Tuteja, 2016. "Contagion in International Stock and Currency Markets During Recent Crisis Episodes," Working papers 258, Centre for Development Economics, Delhi School of Economics.
    16. Schou-Zibell, Lotte & Albert, Jose Ramon & Song, Lei Lei, 2010. "A Macroprudential Framework for Monitoring and Examining Financial Soundness," Working Papers on Regional Economic Integration 43, Asian Development Bank.
    17. Sevim, Cuneyt & Oztekin, Asil & Bali, Ozkan & Gumus, Serkan & Guresen, Erkam, 2014. "Developing an early warning system to predict currency crises," European Journal of Operational Research, Elsevier, vol. 237(3), pages 1095-1104.
    18. Oet, Mikhail V. & Gramlich, Dieter & Sarlin, Peter, 2016. "Evaluating measures of adverse financial conditions," Journal of Financial Stability, Elsevier, vol. 27(C), pages 234-249.
    19. Sophie Brana & Delphine Lahet, 2005. "La propagation des crises financieres dans les pays emergents : la contagion est-elle discriminante ?," Economie Internationale, CEPII research center, issue 103, pages 73-96.
    20. Babecký, Jan & Havránek, Tomáš & Matějů, Jakub & Rusnák, Marek & Šmídková, Kateřina & Vašíček, Bořek, 2013. "Leading indicators of crisis incidence: Evidence from developed countries," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 1-19.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:buecrs:v:75:y:2023:i:1:p:40-64. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.