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Financial crises and economic recovery: Cross-country heterogeneity and cross-sectional dependence

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  • Bakas, Dimitrios
  • Mendieta-Muñoz, Ivan

Abstract

This paper estimates the impulse responses of output to financial crises using a local projections panel estimator that accounts for cross-country heterogeneity and cross-sectional dependence. Using a long span of data (1870–2016) for a group of 17 advanced economies we show that once we control for unobserved common factors and parameter heterogeneity in the panel, there is strong evidence of economic recovery within the first 10 years after a financial crisis.

Suggested Citation

  • Bakas, Dimitrios & Mendieta-Muñoz, Ivan, 2020. "Financial crises and economic recovery: Cross-country heterogeneity and cross-sectional dependence," Economics Letters, Elsevier, vol. 195(C).
    • Handle: RePEc:eee:ecolet:v:195:y:2020:i:c:s0165176520302718
    DOI: 10.1016/j.econlet.2020.109435
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    References listed on IDEAS

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    1. Natalia Bailey & George Kapetanios & M. Hashem Pesaran, 2016. "Exponent of Cross‐Sectional Dependence: Estimation and Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(6), pages 929-960, September.
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    Cited by:

    1. J A Edwards & C B Naanwaab & S P Simkins, 2023. "The Great Recession and Small States," Economic Issues Journal Articles, Economic Issues, vol. 28(1), pages 81-103, March.
    2. Hong, Yanran & Li, Pan & Wang, Lu & Zhang, Yaojie, 2023. "New evidence of extreme risk transmission between financial stress and international crude oil markets," Research in International Business and Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Financial crisis; Recessions; Impulse responses; Panel data; Parameter heterogeneity; Cross-sectional dependence;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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