Global Booms and Busts

For decades before 2008, boom-bust patterns had been associated almost exclusively with emerging markets. The pattern—a boom phase started by poor financial regulation leading to a surge in foreign capital, large credit flows to the nonfinancial sector, build-up of debt at low interest rates and rapidly increasing investment, abruptly turning to a bust phase where interest rates spike and credit flies to safety, triggering a collapse in output. However, the global financial crisis in 2008 and the eurozone crisis in 2010 have exposed similar vulnerabilities in a group of advanced economies.