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Real effects of banking crises: a survey of the literature

Author

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  • Luisa Carpinelli

    (Banca d'Italia)

Abstract

The literature is unanimous in highlighting that banking crises have a negative impact on GDP, usually more pronounced in developing economies. The magnitude of the losses is more controversial: the quantitative results of studies on the repercussions of banking crises on economic activity, in fact, are quite uneven. Estimates on the correlation between financial variables and GDP indicate output losses generally greater than ten percentage points of pre-crisis output and exhibit high variability, as a result of the large number of different methodologies adopted to measure real costs. The very high values thus obtained often reflect a problem in identifying the causal nexus between banking crises and real output fluctuations. The most recent literature, which examines the relevance of specific channels of transmission based on individual data, tends to produce a lower estimate of the direct causal effects of banking crises, which are rarely found to cause an output loss exceeding 2 per cent.

Suggested Citation

  • Luisa Carpinelli, 2009. "Real effects of banking crises: a survey of the literature," Questioni di Economia e Finanza (Occasional Papers) 55, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_55_09
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    More about this item

    Keywords

    banking crises; real effects; transmission channesl; procyclicality;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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