CIAO DATE: 04/2010
January 2010
Centre for European Policy Studies
The recent financial crisis was caused by a combination of asset price bubbles, mainly in the real estate sector, and a credit bubble that led to excessive leverage. A recurrent theme of this paper is that an appropriate assessment of the crisis should be made in light of the bubble that preceded it. Accordingly, the current situation should be compared to a ‘no-bubble’ benchmark rather than the pre-crisis period. Furthermore, the fall in GDP may be a flawed measure of the severity of the crisis if we aim to assess the true impact of the crisis on the wider public: the latter is more affected by job stability and consumption paths than GDP statistics.
Resource link: The Impact of the Crisis on the Real Economy [PDF] - 258K