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The Real Output Costs of Financial Crisis: A Loss Distribution Approach

Author

Listed:
  • Kapp, Daniel

    (University of Paris)

  • Vega, Marco

    (Banco Central de Reserva del Perú
    Universidad Católica del Perú)

Abstract

We study cross-country GDP losses due to financial crises in terms of frequency (number of loss events per period) and severity (loss per occurrence). We perform the Loss Distribution Approach (LDA) to estimate a multi-country aggregate GDP loss probability density function and the percentiles associated to extreme events due to financial crises. We find that output losses arising from financial crises are strongly heterogeneous and that currency crises lead to smaller output losses than debt and banking crises. Extreme global financial crises episodes, occurring with a one percent probability every five years, lead to losses between 2.95% and 4.54% of world GDP.

Suggested Citation

  • Kapp, Daniel & Vega, Marco, 2012. "The Real Output Costs of Financial Crisis: A Loss Distribution Approach," Working Papers 2012-013, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2012-013
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    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2012/documento-de-trabajo-13-2012.pdf
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    References listed on IDEAS

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    Cited by:

    1. Annabelle Mourougane, 2017. "Crisis, potential output and hysteresis," International Economics, CEPII research center, issue 149, pages 1-14.
    2. Steiner, Andreas, 2014. "Reserve accumulation and financial crises: From individual protection to systemic risk," European Economic Review, Elsevier, vol. 70(C), pages 126-144.

    More about this item

    Keywords

    Financial Crisis; Severity; Frequency; Loss Distribution Approach;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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