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The Ugly and the Bad: Banking and Housing Crises Strangle Output Permanently, Ordinary Recessions Do Not

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  • Jens Hogrefe
  • Nils Jannsen
  • Carsten-Patrick Meier

Abstract

This paper provides statistical evidence suggesting that in industrial countries, recessions that are associated with either banking crises or housing crises dampen output far more than ordinary recessions. Using a parametric panel framework that allows for a bounceback of the level of output in the course of the cyclical recovery, we find that ordinary recessions are followed by strong recoveries that make up for almost all the preceding shortfall in output. This bounceback tends to be significantly smaller following recessions associated with banking crises or housing crises. Our paper corroborates the practice of focusing exclusively on severe crises used in an emerging macroeconomic literature and integrates it with the earlier literature on recessions and recoveries

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File URL: https://www.ifw-members.ifw-kiel.de/publications/the-ugly-and-the-bad-banking-and-housing-crises-strangle-output-permanently-ordinary-recessions-do-not/the-ugly-and-the-bad-banking-and-housing-crises-strangle-output-permanently-ordinary-recessions-do-not
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1586.

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Length: 28 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:kie:kieliw:1586

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Keywords: business cycle; banking crisis; housing crisis; panel data; asymmetry; persistence;

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References

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  1. Cecchetti, Stephen G & Kohler, Marion & Upper, Christian, 2009. "Financial Crises and Economic Activity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7495, C.E.P.R. Discussion Papers.
  2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 473-500, June.
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  4. Christian Aßmann & Jens Boysen-Hogrefe & Nils Jannsen, 2013. "Costs Of Housing Crises: International Evidence," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 65(4), pages 299-313, October.
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  9. Stijn Claessens & M. Ayhan Kose & Marco E. Terrones, 2009. "What happens during recessions, crunches and busts?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 24, pages 653-700, October.
  10. Nils Jannsen, 2009. "National and International Business Cycle Effects of Housing Crises," Kiel Working Papers 1510, Kiel Institute for the World Economy.
  11. Jeremy Piger & James Morley & Chang-Jin Kim, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
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  13. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
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  15. Valerie Cerra & Sweta Chaman Saxena, 2003. "Did Output Recover From the Asian Crisis?," IMF Working Papers 03/48, International Monetary Fund.
  16. Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc.
  17. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
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Citations

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Cited by:
  1. Mehdi Hosseinkouchack & Maik Wolters, 2012. "Do large recessions reduce output permanently?," Kiel Working Papers 1815, Kiel Institute for the World Economy.
  2. Boysen-Hogrefe, Jens & Dovern, Jonas & Gern, Klaus-Jürgen & Jannsen, Nils & van Roye, Björn & Scheide, Joachim, 2010. "Weltkonjunktur kommt nach kräftiger Erholung in schwierigeres Fahrwasser," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 45600, Kiel Institute for the World Economy (IfW).
  3. Boss, Alfred & Dovern, Jonas & Groll, Dominik & Meier, Carsten-Patrick & van Roye, Björn & Scheide, Joachim, 2010. "Deutschland: Konjunkturelle Erholung setzt sich in verlangsamtem Tempo fort - Gefahr eines Rückschlags durch die Schuldenkrise," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 45571, Kiel Institute for the World Economy (IfW).
  4. Jannsen, Nils & Scheide, Joachim, 2010. "Growth patterns after the crisis: This time is not different," Kiel Policy Brief 22, Kiel Institute for the World Economy (IfW).
  5. Jannsen, Nils & Scheide, Joachim, 2011. "Ist die Geldpolitik in den USA zu expansiv?," Kiel Policy Brief 26, Kiel Institute for the World Economy (IfW).
  6. Gern, Klaus-Jürgen & Jannsen, Nils & van Roye, Björn & Scheide, Joachim, 2010. "Erholung der Weltwirtschaft verliert an Schwung," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 45574, Kiel Institute for the World Economy (IfW).
  7. Boss, Alfred & Dovern, Jonas & Groll, Dominik & Meier, Carsten-Patrick & Van Roye, Björn & Scheide, Joachim, 2010. "Deutsche Konjunktur im Frühjahr 2010," Kiel Discussion Papers 478, Kiel Institute for the World Economy (IfW).
  8. Jannsen, Nils & Scheide, Joachim, 2010. "Growth patterns after the crisis: This time is not different," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 47873, Kiel Institute for the World Economy (IfW).
  9. Boss, Alfred & Dovern, Jonas & Groll, Dominik & van Roye, Björn & Meier, Carsten-Patrick & Scheide, Joachim, 2010. "Moderate Erholung in Deutschland - Arbeitsmarkt in erstaunlich guter Verfassung," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 45584, Kiel Institute for the World Economy (IfW).
  10. Dovern, Jonas & Gern, Klaus-Jürgen & Jannsen, Nils & van Roye, Björn & Scheide, Joachim, 2010. "Schwellenländer tragen die Expansion der Weltwirtschaft," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 45590, Kiel Institute for the World Economy (IfW).

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