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Once Bitten, Twice Shy: Experiences Of A Banking Crisis And Expectations Of Future Crises

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  • Shannon Mudd

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  • Neven Valev

    ()

Abstract

Survey data from Bulgaria show that people who had experienced a loss during a banking crisis are significantly more likely to expect a new crisis. This result holds despite 12 years between the earlier crisis and the survey, and the dramatically improved performance of the financial sector and the economy in the meantime. However, we find that earlier experiences affect expectations only for less informed individuals. Individuals who are more informed about the economy are unaffected by their prior experiences.

Suggested Citation

  • Shannon Mudd & Neven Valev, 2009. "Once Bitten, Twice Shy: Experiences Of A Banking Crisis And Expectations Of Future Crises," William Davidson Institute Working Papers Series wp969, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2009-969
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/64382/1/wp969.pdf
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    References listed on IDEAS

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    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    2. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, July.
    3. M. Berlemann & K. Hristov & Nikolay Nenovsky, 2002. "Lending of last resort, moral hazard and twin crises. Lessons from the Bulgarian financial crises 1996/1997," Post-Print halshs-00260052, HAL.
    4. Dobrinsky, Rumen, 2000. "The Transition Crisis in Bulgaria," Cambridge Journal of Economics, Oxford University Press, vol. 24(5), pages 581-602, September.
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    6. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    7. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June.
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    12. Sheffrin,Steven M., 1996. "Rational Expectations," Cambridge Books, Cambridge University Press, number 9780521479394, March.
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    Cited by:

    1. Taškar Sabina & Šebjan Urban, 2015. "Is Trust in Banks in Slovenia Put to the Test?," Naše gospodarstvo/Our economy, De Gruyter Open, vol. 61(3), pages 41-50, June.
    2. Osili, Una Okonkwo & Paulson, Anna, 2014. "Crises and confidence: Systemic banking crises and depositor behavior," Journal of Financial Economics, Elsevier, vol. 111(3), pages 646-660.
    3. Stix, Helmut, 2013. "Why do people save in cash? Distrust, memories of banking crises, weak institutions and dollarization," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4087-4106.

    More about this item

    Keywords

    banking crisis; trust; expectations;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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