From the financial crisis to the economic crisis The impact of the financial trouble of 2007-2008 on the growth of seven advanced countries

The financial crisis started in the United States in 2007 on the subprime mortgage market and, then, gradually spread to all financial markets and strongly impacted growth in the main advanced countries through the years 2008 and 2009. Given its scope and its subsequent uncertainty, we discuss the capacity of macroeconometric models estimated on the past to quantify its various transmission channels. We try to measure the total impact of the crisis on the economy of seven advanced countries and on the euro area as a whole using the macroeconomic multinational model NiGEM. During the years 2008 and 2009, Germany suffered from a particularly strong drop in world trade, which would explain more than a half of the effect of the crisis measured in this way in 2009. The United Kingdom and the United States may especially have been affected by wealth effects and a strong drop in their inner demand. This drop may partly have been due to credit tightening. Japan seems to be the most affected country in 2009: the drop in foreign trade was exacerbated by the appreciation of the yen and investment seems to have strongly over-reacted to the fall in activity. A contrario, the fact that France suffered from a less marked drop in output in 2009 might be explained by an absence of over-reaction in economic behaviours and less sensitivity to the fall in world trade.