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Political Booms, Financial Crises

Author

Listed:
  • Helios Herrera

    () (Department of Applied Economics, HEC)

  • Guillermo Ordoñez

    () (Department of Economics, University of Pennsylvania and NBER)

  • Christoph Trebesch

    () (Department of Economics, University of Munich and CESifo)

Abstract

We show that political booms, measured by the rise in governments’ popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises. We provide evidence of the relevance of this reputation mechanism.

Suggested Citation

  • Helios Herrera & Guillermo Ordoñez & Christoph Trebesch, 2014. "Political Booms, Financial Crises," PIER Working Paper Archive 14-024, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:14-024
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    Cited by:

    1. repec:eee:inecon:v:108:y:2017:i:c:p:37-53 is not listed on IDEAS
    2. Òscar Jordà & Björn Richter & Moritz Schularick & Alan M. Taylor, 2017. "Bank Capital Redux: Solvency, Liquidity, and Crisis," NBER Working Papers 23287, National Bureau of Economic Research, Inc.
    3. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2017. "Housing booms and busts and local fiscal policy," Working Papers 2017/05, Institut d'Economia de Barcelona (IEB).
    4. Paul, Pascal, 2017. "Historical Patterns of Inequality and Productivity around Financial Crises," Working Paper Series 2017-23, Federal Reserve Bank of San Francisco.
    5. Scholl, Almuth, 2017. "The dynamics of sovereign default risk and political turnover," Journal of International Economics, Elsevier, vol. 108(C), pages 37-53.
    6. Timm M. Prein & Almuth Scholl, 2018. "The Impact of Bailouts on Political Turnover and Sovereign Default Risk," Working Paper Series of the Department of Economics, University of Konstanz 2018-04, Department of Economics, University of Konstanz.
    7. N. Chesterley & P. Roberti, 2016. "Populism and Institutional Capture," Working Papers wp1086, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Florian Christopher Buck, 2015. "The Rents of Banking A Public Choice Approach to Bank Regulation," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 59.

    More about this item

    Keywords

    Credit Booms; Reputation; Financial Crises; Political Popularity; Emerging Markets;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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