AEs and EMEs are under a global economy where they are interconnected with each other but have had to remain different in terms of their policy instruments.
Past financial crises that have impacted the overall global economy include the Latin American economic crisis in the 1980s, which was the symbol of a sovereign debt crisis; the Scandinavian financial crisis of the late 1980s and early 1990s, resulting from accelerated financial liberalization; second Latin American crisis in the 1990s, which stemmed from sharp interest rate hikes in the U.S. while facing distortions in relative prices between tradable and non-tradable goods; the Asian currency crisis in the late 1990s, owing to excessive corporate debt, rigid exchange rate regimes and inadequate supervisory systems; Japan’s long-term recession; and the US savings and loan crisis.4 Experience tells us that we cannot dismiss as a coincidence the fact that AEs and EMEs have taken turns in causing crises, while the economic boom and bust cycle is an unavoidable natural attribute in the real market economy system.