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Fiscal policy and the duration of financial crises

  • CRAIGWELL, ROLAND
  • Lorde, Troy
  • Moore, Winston

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.

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File URL: http://mpra.ub.uni-muenchen.de/40836/1/MPRA_paper_40836.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40836.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:40836
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  1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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  7. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  8. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
  9. Saubhik Deb, 2006. "Trade First and Trade Fast: A Duration Analysis of Recovery from Currency Crisis," Departmental Working Papers 200607, Rutgers University, Department of Economics.
  10. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
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