The Global Financial Crisis and Its Effects*

The global financial crisis has been one of the most significant economic shocks in the post‐war period. At its core, the crisis originated in credit markets in developed countries – centred particularly in the United States, the United Kingdom and Europe – but the fallout has had a significant effect on activity in every country and region. As the crisis intensified, there was a large swing in the appetite of world financial markets for risk, and in their capacity to accept risk. The result was a shift from the easy credit conditions that had prevailed for some years to a situation of tight credit and in some cases dysfunctional markets. This was accompanied by a loss of consumer and business confidence, with significant effects on global activity. This article focuses on the main causes of the crisis, how it has affected the world economy, and how governments and central banks have responded.