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The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries

  • Davide Furceri
  • Annabelle Mourougane

The aim of this paper is to assess the impact of financial crises on potential output. For this purpose a univariate autoregressive growth equation is estimated on an unbalanced panel of OECD countries over the period 1960 to 2007. Our results suggest that the occurrence of a financial crisis negatively and permanently affects potential output. In particular, financial crises are estimated to lower potential output by around 1.5 to 2.4% on average. The magnitude of the effect increases with the severity of the crisis. The occurrence of a deep crisis is found to decrease potential output by nearly 4%, almost twice the amount observed for the average of crises. These results are robust to the use of an alternative measure of potential output, changes in the methodology and in the sample periods. L'effet des crises financières sur la production potentielle : nouvelle analyse empirique sur les pays de l'OCDE L’objectif de ce papier est d’estimer l’effet des crises financières sur la production potentielle. A cette fin, une équation de croissance univariée est estimée sur un panel non cylindré de données sur les pays de l’OCDE sur la période 1960-2007. Nos analyses suggèrent que l’occurrence d’une crise affecte négativement et de façon persistante la production potentielle. En particulier, les crises financières diminueraient d’après nos estimations la production potentielle d’environ 1.5 à 2.4% en moyenne. L’amplitude de cet effet augmente avec la sévérité de la crise. L’éclatement d’une crise profonde est estimé réduire la production potentielle d’un peu moins de 4%, presque deux fois la taille de l’effet moyen observé sur les crises. Ces résultats sont robustes à l’utilisation d’une mesure alternative de la production potentielle, à des changements dans la méthodologie et dans la période d’estimation.

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File URL: http://dx.doi.org/10.1787/224126122024
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 699.

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Date of creation: 19 May 2009
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Handle: RePEc:oec:ecoaaa:699-en
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