Advanced Search
MyIDEAS: Login

The Consequences of Banking Crises for Public Debt

Contents:

Author Info

  • Davide Furceri
  • Aleksandra Zdzienicka

Abstract

The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long-lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. Measuring the increase in debt in this manner seems more appropriate than some of the measures used in the literature that have provided off-quoted and very large numbers for the run-up in debt. In addition, the debt ratio increased more in countries with a higher initial gross debt-to-GDP ratio and with a higher initial foreign debt-to-GDP ratio. Les conséquences des crises bancaires pour la dette publique L’objectif de ce document est de déterminer l’impact des crises bancaires sur la dette publique. Les résultats obtenus utilisant un panel non-cylindré de 154 pays sur la période 1980-2006 montrent que les crises bancaires provoquent une augmentation significative et persistante de la dette publique. Cet effet dépend de la sévérité de la crise. Plus précisément, les crises dont la sévérité est comparable à la crise la plus récente en termes de pertes de PIB augmentent la dette publique brute par rapport PIB d’environ 37 points de pourcentage à moyen terme. Cette approche semble être plus appropriée par rapport à celles utilisées dans la littérature qui centrées sur la dette publique elle-même rapportent l’impact beaucoup plus important des crises bancaires. De plus, l’impact des crises bancaires croît en fonction du niveau initial de la dette public et de la dette extérieur par rapport au PIB.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://dx.doi.org/10.1787/5km7v02j85zp-en
Download Restriction: no

Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 801.

as in new window
Length:
Date of creation: 25 Aug 2010
Date of revision:
Handle: RePEc:oec:ecoaaa:801-en

Contact details of provider:
Postal: 2 rue Andre Pascal, 75775 Paris Cedex 16
Phone: 33-(0)-1-45 24 82 00
Fax: 33-(0)-1-45 24 85 00
Email:
Web page: http://www.oecd.org
More information through EDIRC

Related research

Keywords: public debt; financial crisis; banking crisis; crise bancaire; crise financière; dette publique;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
  2. Michael D. Bordo & Alberto F. Cavallo & Christopher M. Meissner, 2007. "Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880-1913," NBER Working Papers 13489, National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
  4. Coen Teulings & Nick Zubanov, 2011. "Is economic recovery a myth? Robust estimation of impulse responses," CPB Discussion Paper 131, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," Research Department Publications 4367, Inter-American Development Bank, Research Department.
  6. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2008. "Government risk premiums in the bond market: EMU and Canada," Working Paper Series 0879, European Central Bank.
  7. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
  9. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 503-532, October.
  10. Michael Hutchison & Ilan Noy, 2002. "How bad are twins? output costs of currency and banking crises," Pacific Basin Working Paper Series 2002-02, Federal Reserve Bank of San Francisco.
  11. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
  12. Davide Furceri & Aleksandra Zdzienicka, 2011. "The real effect of financial crises in the European transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(1), pages 1-25, 01.
  13. Michael D. Bordo & Christopher M. Meissner, 2005. "The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997," NBER Working Papers 11897, National Bureau of Economic Research, Inc.
  14. Davide Furceri & Aleksandra Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Working Papers 1014, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  15. Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market?," Economic Policy, CEPR & CES & MSH, vol. 24, pages 191-240, 04.
  16. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
  17. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  18. Sweta Chaman Saxena & Valerie Cerra, 2005. "Growth Dynamics: The Myth of Economic Recovery," IMF Working Papers 05/147, International Monetary Fund.
  19. Gale, William G. & Orszag, Peter R., 2003. "Economic Effects of Sustained Budget Deficits," National Tax Journal, National Tax Association, vol. 56(3), pages 463-85, September.
  20. Davide Furceri & Annabelle Mourougane, 2009. "Financial Crises: Past Lessons and Policy Implications," OECD Economics Department Working Papers 668, OECD Publishing.
  21. Ugo Panizza, 2008. "Domestic And External Public Debt In Developing Countries," UNCTAD Discussion Papers 188, United Nations Conference on Trade and Development.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Agnello, L. & Furceri, D. & R.M, Sousa., 2011. "Fiscal Policy Discretion, Private Spending, and Crisis Episodes," Working papers 354, Banque de France.
  2. Athanasios Tagkalakis, 2012. "The effects of financial crisis on fiscal positions," Working Papers 145, Bank of Greece.
  3. Lorenzo E. Bernal-Verdugo & Davide Furceri & Dominique M. Guillaume, 2013. "The Dynamic Effect of Social and Political Instability on Output: The Role of Reforms," IMF Working Papers 13/91, International Monetary Fund.
  4. Luca Agnello & Davide Furceri & Ricardo Sousa, 2013. "Discretionary Government Consumption, Private Domestic Demand, and Crisis Episodes," Open Economies Review, Springer, vol. 24(1), pages 79-100, February.
  5. Davide Furceri & Aleksandra Zdzienicka, 2011. "How Costly Are Debt Crises?," IMF Working Papers 11/280, International Monetary Fund.
  6. Davide Furceri & Aleksandra Zdzienicka, 2013. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," IMF Working Papers 13/198, International Monetary Fund.
  7. Furceri, Davide & Guichard, Stéphanie & Rusticelli, Elena, 2012. "The effect of episodes of large capital inflows on domestic credit," The North American Journal of Economics and Finance, Elsevier, vol. 23(3), pages 325-344.
  8. Gabriele Galati & John Lewis & Steven Poelhekke & Chen Zhou, 2011. "Have market views on the sustainability of fiscal burdens influenced monetary authorities' credibility?," DNB Working Papers 304, Netherlands Central Bank, Research Department.
  9. Annabelle Mourougane & Davide Furceri, 2010. "Une lecture de la crise à la lumière des crises passées," Économie et Statistique, Programme National Persée, vol. 438(1), pages 19-42.
  10. Maria Th. Kasselaki & Athanasios O. Tagkalakis, 2013. "Financial soundness indicators and financial crisis episodes," Working Papers 158, Bank of Greece.
  11. Steiner, Andreas, 2013. "How central banks prepare for financial crises – An empirical analysis of the effects of crises and globalisation on international reserves," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 208-234.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:801-en. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.