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What medium-term growth rates after the crisis?

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  • P.Y. CABANNES

    (Insee)

  • V. LAPÈGUE

    (Insee)

  • E. POULIQUEN

    (Insee)

  • M. BEFFY

    (Insee)

  • M. GAINI

    (Insee)

Registered author(s):

    Abstract

    The financial crisis originated in the United States in 2007 and, then, spread in all the economies of the world. After a drop in activity of historic magnitude, first signs of recovery were recorded in 2009. However, our study of previous banking crises that have taken place in OECD countries over the last forty years leads one to expect a very gradual return of growth rates to their pre-crisis values, with long-lasting losses for the level of GDP. According to our estimations, average losses observed during past banking crises occurred through a reduction in capital stocks, an increase in unemployment rates and a drop in participation rates. Conversely, past banking crises seemed to have had little impact on total factor productivity. In France, the 1992-1993 crisis, which shares some common features with the current crisis, had also long-lasting negative impacts on the employment and unemployment rates. Employment-rate losses were fairly similar for men and women. Ten years passed before the overall unemployment rate returned to its pre-crisis level. Based on various post-crisis scenarios, we illustrate the mechanical medium-term impact of the current crisis on public finances, whithout any fiscal adjustment after 2012. Even in the scenario of a complete recovery by 2018 of GDP losses recorded in 2008 and 2009, the impact on the public debt would exceed 20 % of GDP ten years after the crisis as a result of declining revenues and increasing interest payments. The impact would be still higher in less favourable scenarios.

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    File URL: http://www.insee.fr/fr/publications-et-services/docs_doc_travail/G2010-09.pdf
    File Function: Document de travail de la DESE numéro G2010-09
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    Bibliographic Info

    Paper provided by Institut National de la Statistique et des Etudes Economiques, DESE in its series Documents de Travail de la DESE - Working Papers of the DESE with number g2010-09.

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    Date of creation: 2010
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    Handle: RePEc:crs:wpdeee:g2010-09

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    Related research

    Keywords: financial crisis; medium-term growth;

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    1. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-57, March.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
    3. Davide Furceri & Annabelle Mourougane, 2009. "The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 699, OECD Publishing.
    4. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
    5. Laurence M. Ball, 2009. "Hysteresis in Unemployment: Old and New Evidence," NBER Working Papers 14818, National Bureau of Economic Research, Inc.
    6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
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