Once the bubble bursts: An overview on the comparison of the Asian economic crisis and the global financial crisis

Abstract

The Asian economic crisis and the global financial crisis had similar roots, which, in both cases, caused widespread instability. Given that recessions associated with financial crises are longer in duration and impose a higher cost on society, solutions to overcoming these two recessions are particularly important from a practical and academic standpoint. This study shows through factor analysis that there is one latent underlying factor that connects the variables associated with these recessions: gross domestic product (GDP) growth, unemployment, inflation and government borrowing (or lending). This study recommends how fiscal policy can be used to stimulate these variables simultaneously in order to help economies tackle recessions and their after-effects. While conservative economists are opposed to government action in tackling recessions, the solutions provided in this study veer on the side of the Keynesians in overcoming the underlying factor which has arguably the greatest impact of these recessions -unemployment.