ABSTRACT
In the earliest stages of the present financial crisis, as US housing prices began to weaken and signs of stress first appeared in the markets for mortgage-backed securities, the extent of the threat to the global economy was not immediately reflected in the world's equity markets. In the US itself, stock prices continued to make modest, intermittent advances through the end of 2007, while Asian emerging market indexes showed more rapid advances consistent with the region's accelerated development. The implication, at least for international investors, was reassuring: one region's growth offsets another region's stumbles. From an economist's longer-term perspective the same principle might also apply to real economic relations of growth, development and trade. This reassuring sense of a future in which periods of prosperity and recession would become more independently distributed in both time and location, became associated with the term ‘decoupling’. Seen from the perspective of 2011, much of the evidence for financial markets' decoupling seems invalid, and that which remains is better described as ‘exciting’ rather than reassuring.
