The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. We attempt to provide a unified conceptual framework for organizing this vast and growing literature. This framework allows us to provide a fresh synthetic perspective on the macroeconomic effects of financial globalization, both in terms of growth and volatility. Overall, our critical reading of the recent empirical literature is that it lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances. On the other hand, there is little systematic evidence to support widely-cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

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a b s t r a c tThis paper analyzes the interactions between business and financial cycles using an extensive database covering 44 countries for the period 1960:1-2010:4. Our analysis shows that there are strong linkages between the different phases of business and financial cycles. In particular, recessions associated with financial disruptions, notably house and equity price busts, tend to be longer and deeper than other recessions. Conversely, while recoveries following asset price busts tend to be weaker, recoveries associated with rapid growth in credit and house prices are often stronger. These findings emphasize the importance of financial market developments for the real economy.

We analyze the evolution of the degree of global cyclical interdependence over the period 1960–2008. Using a dynamic factor model, we decompose macroeconomic fluctuations in output, consumption, and investment into a global factor, factors specific to country groups, and country‐specific factors. We find that during 1985–2008, there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies. Surprisingly, there is a concomitant decline in the relative importance of the global factor. We conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence (or decoupling) between them.

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What happens during recessions, crunches and busts?Claessens, C.A.M.F.; Kose, M.A.; Terrones, M.E. Link to publication Citation for published version (APA):Claessens, S., Kose, M. A., & Terrones, M. E. (2008). What happens during recessions, crunches and busts? (IMF working papers; No. 08/274). Washington, D.C.: IMF. General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: http://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. We document a rich set of stylized facts about the behavior of key macroeconomic and financial variables during these various events. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of a recession. In particular, we show that recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are. In light of our findings, we examine the implications of recent macroeconomic and financial developments in the United States for the future path of its economy. • The typical recession lasts almost 4 quarters and is associated with an output drop of roughly 2 percent ( Figure A). While recessions have been becoming shorter and milder over time, they remain highly synchronized across countries. Most macroeconomic and financial variables exhibit procyclical behavior during recessions. Moreover, recessions tend to coincide with the episodes of contractions in domestic credit and declines in asset prices.• The episodes of credit crunches, house price and equity price busts last much longer than recessions do. The dynamics of output, consumption and investment around these events are similar to those observed during recessions.• In about one out of six recessions, there is also a credit crunch underway and, in about one out of four recessions, also a house price bust. Recessions associated with housing busts and credit crunches are both deeper and longer-lasting than other recessions are.• The considerable slowdown in U.S. output over the last few quarters is not atypical of the onset of previous recession episodes in the United States and other OECD countries ( Figure B). However, recent declines in resi...

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