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The Real Output Costs of Financial Crisis: A Loss Distribution Approach

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  • Kapp, Daniel

    (University of Paris)

  • Vega, Marco

    (Banco Central de Reserva del Perú
    Universidad Católica del Perú)

Abstract

We study cross-country GDP losses due to financial crises in terms of frequency (number of loss events per period) and severity (loss per occurrence). We perform the Loss Distribution Approach (LDA) to estimate a multi-country aggregate GDP loss probability density function and the percentiles associated to extreme events due to financial crises. We find that output losses arising from financial crises are strongly heterogeneous and that currency crises lead to smaller output losses than debt and banking crises. Extreme global financial crises episodes, occurring with a one percent probability every five years, lead to losses between 2.95% and 4.54% of world GDP.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2012-013.

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Date of creation: May 2012
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Handle: RePEc:rbp:wpaper:2012-013

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Keywords: Financial Crisis; Severity; Frequency; Loss Distribution Approach;

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