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The Macroeconomic Consequences of Banking Crises in OECD Countries

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Author Info
David Haugh
Patrice Ollivaud
David Turner
Abstract

This paper examines the characteristics of downturns and subsequent recoveries following past banking crises in OECD countries as well as evidence of any effects on potential output growth. It is differentiated from previous analyses because it makes use of OECD measures of the output gap and potential output. Downturns following banking crises are found to be more protracted with larger output losses and disproportionate falls in housing and business investment. The recovery is typically more muted with exports providing a disproportionately large positive contribution. Evidence regarding possible effects on potential growth of a banking crisis is mixed. The banking crisis in Japan was followed by a deterioration in potential growth partly due to a worsening in productivity performance which may be related to the protracted nature of the banking problems and the resulting misallocation of capital. Following the Nordic banking crises, which were resolved more quickly, there was no deterioration in productivity performance, although there was a temporary deterioration in potential growth which is mostly explained by an increase in the structural unemployment rate, which in turn may reflect the interaction of an exceptionally severe downturn with structural labour market rigidities.

Conséquences macroéconomiques des crises bancaires dans les pays de l’OCDE
Ce papier analyse, dans le contexte des crises bancaires passées des pays de l’OCDE, les caractéristiques des ralentissements économiques et de la reprise qui suit, ainsi que de mettre en évidence de possibles effets sur la croissance du potentiel de production. Cette étude se différencie des précédentes par l’utilisation de l’écart de production et du potentiel de l’économie. Les ralentissements qui font suite à une crise bancaire semblent durer plus longtemps avec des pertes plus importantes et avec une réaction négative de l’investissement privé disproportionnée. Le rythme de la reprise est plus modéré et se caractérise par des contributions fortement positives des exportations. Les résultats de l’analyse des conséquences des crises bancaires sur le potentiel de l’économie sont mitigés. La crise bancaire au Japon a affecté négativement le potentiel de production via une baisse de la productivité du travail. Cela peut être relié à la durée des problèmes bancaires qui ont touché le Japon et de leurs conséquences néfastes sur l’allocation du capital. Dans le cas des crises bancaires des pays nordiques qui ont duré moins longtemps, il n’y a pas eu d’effets sur la productivité, bien que temporairement le potentiel ait baissé ce qui provient principalement d’une augmentation du taux de chômage structurel. Cette dernière relation peut refléter l’interaction entre d’une part un ralentissement exceptionnellement sévère et d’autre part des rigidités structurelles sur le marché du travail.

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File URL: http://dx.doi.org/10.1787/226123651438
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Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 683.

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Date of creation: 06 Mar 2009
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Handle: RePEc:oec:ecoaaa:683-en

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Related research
Keywords: banking crisis; business cycle; downturn; financial crisis; output gap; potential output; crise bancaire; crise financière; croissance potentielle; cycle économique; écart de production; ralentissement économique;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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This page was last updated on 2009-12-2.

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