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Fiscal policy and the duration of financial crises

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  • Roland Craigwell
  • Troy Lorde
  • Winston Moore

Abstract

Financial systems across the world have all come under pressure due to the on-going financial crisis. One of the most often asked questions during a collapse is how long and how deep will the decline be as well as what policy initiatives can be employed to shorten the recession. This study estimates a model of the duration of financial crises in an attempt to identify whether fiscal policy can reduce the time to recovery. The results suggest that fiscal shocks, which could provoke an overreaction on the part of markets, tend to lengthen crisis duration. Significant nonlinear effects of government spending are also reported in relation to trade openness and financial openness.

Suggested Citation

  • Roland Craigwell & Troy Lorde & Winston Moore, 2013. "Fiscal policy and the duration of financial crises," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 793-801, February.
    • Handle: RePEc:taf:applec:45:y:2013:i:6:p:793-801
    DOI: 10.1080/00036846.2011.613769
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G01 - Financial Economics - - General - - - Financial Crises

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