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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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