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Real output costs of financial crises: A loss distribution approach

Author

Listed:
  • Daniel Kapp

    (University of Paris 1 – Panthéon-Sorbonne and Paris School of Economics, Paris, France)

  • Marco Vega

    (Central Bank of Peru and Universidad Católica del Perú, Lima, Peru)

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.

Suggested Citation

  • Daniel Kapp & Marco Vega, 2014. "Real output costs of financial crises: A loss distribution approach," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 37(103), pages 13-28, Abril.
  • Handle: RePEc:cud:journl:v:37:y:2014:i:103:p:13-28
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Tolga Umut Kuzubas & Burak Saltoglu & Can Sever, 2014. "Systemic Risk and Heterogeneous Leverage in Banking Network: Implications for Banking Regulation," Working Papers 2014/01, Bogazici University, Department of Economics.
    2. Sever, Can, 2014. "Systemic Liquidity Crisis with Dynamic Haircuts," MPRA Paper 55602, University Library of Munich, Germany.
    3. Boonman, Tjeerd M., 2013. "Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012," Research Report 13010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Boris Vujcic & Mirna Dumicic, 2016. "Managing systemic risks in the Croatian economy," BIS Papers chapters,in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 75-84 Bank for International Settlements.
    5. Aizenman, Joshua & Ito, Hiro, 2014. "Living with the trilemma constraint: Relative trilemma policy divergence, crises, and output losses for developing countries," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 28-51.
    6. Devereux, John & Dwyer, Gerald P., 2016. "What determines output losses after banking crises?," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 69-94.
    7. Emilia-Ancuta Corovei, 2015. "Real Output Costs of Financial Crisis on CEE Countries," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 7(1), pages 80-84, March.
    8. Iustina Alina Boitan, 2015. "Output Loss Severity across EU Countries. Evidence for the 2008 Financial Crisis," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 11(4), pages 117-126, August.

    More about this item

    Keywords

    Financial crisis. Severity. Frequency. Loss Distribution Approach;

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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