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What’S the Damage? Medium-Term Output Dynamics After Banking Crises

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Author Info

  • Abdul Abiad
  • Petya Koeva Brooks
  • Irina Tytell
  • Daniel Leigh
  • Ravi Balakrishnan

Abstract

This paper investigates the medium-term behavior of output following banking crises, and its association with pre- and post-crisis conditions and policies. We find that output tends to be depressed substantially following banking crises, with no rebound to the precrisis trend. However, growth does eventually tend to return to its precrisis rate, with substantial crosscountry variation in outcomes. The depressed path of output typically results from reductions of roughly equal proportions in the employment rate, the capital-to-labor ratio, and total factor productivity. Initial conditions that are strongly associated with medium-run output losses include the short-run change in output, the occurrence of a joint banking-and-currency crisis, and a high precrisis level of investment. Short-run fiscal and monetary stimulus is associated with smaller medium-run deviations of output and growth from the precrisis trend.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/245.

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Length: 37
Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/245

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Keywords: Asset management; Governance; Investment policy; Pension funds; Pension supervision; Savings promotion; banking crises; banking; banking crisis; currency crises; financial crises; currency crisis; pre-crisis; post-crisis period; financial crisis; macroeconomic policies; financial liberalization; financial integration; crisis episodes; bank credit; bank runs; recession; capital mobility; asian financial crisis; recessions; banking sector; bankruptcies; effect of recessions; banking sector reforms; crisis fluctuations; post-crisis growth; systemic banking crises; financial reforms; severe financial crisis; post-crisis investment; crisis episode; crisis countries; capital account liberalization;

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References

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Citations

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Cited by:
  1. Claessens, Stijn & Kose, Ayhan, 2013. "Financial Crises: Explanations, Types, and Implications," CEPR Discussion Papers 9329, C.E.P.R. Discussion Papers.
  2. Claessens, Stijn & Kose, Ayhan & Laeven, Luc & Valencia, Fabian, 2013. "Understanding Financial Crises: Causes, Consequences, and Policy Responses," CEPR Discussion Papers 9310, C.E.P.R. Discussion Papers.
  3. Jaromír Baxa & Roman Horváth & Borek Vasícek, 2011. "Monetary Policy Rules and Financial Stress: Does Financial Instability Matter for Monetary," Working Papers wpdea1101, Department of Applied Economics at Universitat Autonoma of Barcelona.
  4. Adam S. Posen, 2010. "The Central Banker's Case for Doing More," Policy Briefs PB10-24, Peterson Institute for International Economics.
  5. Tsangarides, Charalambos G., 2012. "Crisis and recovery: Role of the exchange rate regime in emerging market economies," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 470-488.
  6. Marcela Eslava & Arturo Galindo & Marc Hofstetter & Alejandro Izquierdo, 2010. "Scarring Recessions and Credit Constraints: Evidence from Colombian Firm Dynamics," DOCUMENTOS CEDE 007711, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Branimir Jovanovic, 2012. "How Policy Actions Affect Short-term Post-crisis Recovery?," CEIS Research Paper 253, Tor Vergata University, CEIS, revised 05 Oct 2012.
  8. Jarko Fidrmuc & Reiner Martin, 2011. "FDI, Trade and Growth in CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
  9. Sohrab Rafiq, 2013. "The Growth and Stabilization Properties of Fiscal Policy in Malaysia," IMF Working Papers 13/149, International Monetary Fund.
  10. Cyn-Young Park & Ruperto P. Majuca & Josef T. Yap, 2010. "The 2008 Financial Crisis and Potential Output in Asia : Impact and Policy Implications," Finance Working Papers 23101, East Asian Bureau of Economic Research.
  11. José Osler Alzate Mahecha, 2013. "Sudden stops in emerging markets: How to minimize their impact on GDP?," DOCUMENTOS CEDE 010547, UNIVERSIDAD DE LOS ANDES-CEDE.
  12. Selim Elekdag & Ibrahim Burak Kanli, 2010. "Finansal Stres ve Iktisadi Faaliyet," CBT Research Notes in Economics 1006, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  13. World Bank, 2011. "Global Economic Prospects, Volume 2, January 2011 : Navigating Strong Currents," World Bank Publications, The World Bank, number 12097, October.
  14. Jane Haltmaier, 2012. "Do recessions affect potential output?," International Finance Discussion Papers 1066, Board of Governors of the Federal Reserve System (U.S.).
  15. Nicolás de Roux & Marc Hofstetter, 2011. "On the Endogeneity of Inflation Targeting: Preferences Over Inflation," DOCUMENTOS CEDE 008731, UNIVERSIDAD DE LOS ANDES-CEDE.
  16. Prakash Kannan, 2010. "Credit Conditions and Recoveries From Recessions Associated with Financial Crises," IMF Working Papers 10/83, International Monetary Fund.

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