Revealing the effects of ill global eco-financial systems and their capsules

Abstract

This paper examines the origins of the global crisis, the impact of the crisis and the different capsules taken to address the crisis. Using daily data from mid-July 2002 to mid-July 2012 for five groups of economies, our estimation is based on BEKK diagonal GARCH. We augmented two dummy variables to represent the U.S. financial crisis and the debt crisis of Greece. We find that the U.S crisis has insignificant impact on the mean returns of all the economies except the African economies. The U.S. financial crisis, however, has positive and significant impact on the stock volatilities of all the groups except the African economies. The debt crisis of Greece, on the other hand, has negative and significant impact on the mean returns of the European and Latin American economies. Its impact on the stock volatilities, however, is positive and significant in all the economies except the African economies. In examining the origins of the crisis, we identify that excessive reliance of the U.S. economy on the credit system and on the stock market together with historic negligence of the production sector and inadequate regulation are some causative factors.