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Political Booms, Financial Crises

  • Guillermo Ordonez

    (University of Pennsylvania)

  • Christoph Trebesch

    (University of Munich)

  • Helios Herrera

    (Columbia University)

Credit booms seem to be among the main predictors of financial crises. We find that, in emerging economies, political booms measured by increases in incumbents' popularity are important predictors too, not only of financial crises but of economic crises more generally. We propose a model in which governments concerned about their reputation and popularity ride the benefits of credit booms and delay corrective actions to prevent crises. We discuss the policy implication of the model and the consistency of its testable implications with data.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 224.

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Date of creation: 2013
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Handle: RePEc:red:sed013:224
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