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What explains the speed of recovery from banking crises?

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  • Ambrosius, Christian

Abstract

While a large body of research has explored the causes and effects of banking crises, less is known about what determines recovery from banking crises, despite large variations in post-crisis performances across countries. In order to identify local and global factors that determine the length of recovery (i.e. the time it takes until countries reach their pre-crisis level of per capita GDP), this exploratory paper employs event–history analysis on 138 incidents of banking crises between 1970 and 2012. Regarding domestic factors, the simultaneous occurrence of currency crises, large financial sectors, overvalued currencies and large primary deficits are associated with later recovery, whereas higher debt-to-GDP ratios or inflation levels do not exhibit a negative effect on post-crisis performances. Regarding external factors, a low growth of world trade as well as indicators of uncertainty in financial markets are correlated with later recovery. Global interest rate shocks are particularly harmful for the speed of recovery among middle-income countries with a strong reliance on external capital. The results are similar when using the length of recessions as an alternative indicator of post-crisis performances.

Suggested Citation

  • Ambrosius, Christian, 2017. "What explains the speed of recovery from banking crises?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 257-287.
  • Handle: RePEc:eee:jimfin:v:70:y:2017:i:c:p:257-287
    DOI: 10.1016/j.jimonfin.2016.09.007
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    Cited by:

    1. Wilms, Philip & Swank, Job & de Haan, Jakob, 2018. "Determinants of the real impact of banking crises: A review and new evidence," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 54-70.
    2. Levieuge, G. & Lucotte, Y. & Pradines-Jobet, F., 2019. "Central banks’ preferences and banking sector vulnerability," Journal of Financial Stability, Elsevier, vol. 40(C), pages 110-131.
    3. Barthélémy, Sylvain & Binet, Marie-Estelle & Pentecôte, Jean-Sébastien, 2020. "Worldwide economic recoveries from financial crises through the decades," Journal of International Money and Finance, Elsevier, vol. 105(C).
    4. Grégory Levieuge & Yannick Lucotte & Florian Pradines-Jobet, 2019. "The Cost of Banking Crises: Does the Policy Framework Matter?," Working papers 712, Banque de France.

    More about this item

    Keywords

    Banking crises; Recovery; Duration analysis;

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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