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Real Output Costs of Financial Crises: A Loss Distribution Approach

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  • Daniel Kapp
  • Marco Vega

Abstract

We study cross-country GDP losses due to financial crises in terms of frequency (number of loss events per period) and severity (loss per occurrence). We perform the Loss Distribution Approach (LDA) to estimate a multi-country aggregate GDP loss probability density function and the percentiles associated to extreme events due to financial crises. We find that output losses arising from financial crises are strongly heterogeneous and that currency crises lead to smaller output losses than debt and banking crises. Extreme global financial crises episodes, occurring with a one percent probability every five years, lead to losses between 2.95% and 4.54% of world GDP.

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File URL: http://arxiv.org/pdf/1201.0967
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Paper provided by arXiv.org in its series Papers with number 1201.0967.

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Date of creation: Jan 2012
Date of revision: May 2012
Handle: RePEc:arx:papers:1201.0967

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  27. repec:hal:journl:halshs-00639869 is not listed on IDEAS
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Cited by:
  1. Joshua Aizenman & Hiro Ito, 2013. "Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries," NBER Working Papers 19448, National Bureau of Economic Research, Inc.
  2. Boonman, Tjeerd M., 2013. "Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012," Research Report 13010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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