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Political Booms, Financial Crises

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  • Guillermo Ordonez

    (University of Pennsylvania)

  • Christoph Trebesch

    (University of Munich)

  • Helios Herrera

    (Columbia University)

Abstract

Credit booms seem to be among the main predictors of financial crises. We find that, in emerging economies, political booms measured by increases in incumbents' popularity are important predictors too, not only of financial crises but of economic crises more generally. We propose a model in which governments concerned about their reputation and popularity ride the benefits of credit booms and delay corrective actions to prevent crises. We discuss the policy implication of the model and the consistency of its testable implications with data.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 224.

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Date of creation: 2013
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Handle: RePEc:red:sed013:224

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  12. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration," NBER Working Papers 14026, National Bureau of Economic Research, Inc.
  13. Enrique Mendoza & Marco Terrones, 2012. "An Anatomy of Credit Booms and their Demise," Working Papers Central Bank of Chile 670, Central Bank of Chile.
  14. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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