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The dynamics of business investment following banking crises and normal recessions

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  • Jannsen, Nils

Abstract

I empirically analyze the dynamics of business investment following normal recessions (declines in business investment that are not associated with banking crises) and banking crises. Using a panel of 16 advanced economies, I find evidence for significant non-linear trend reversion or bounce-back effects on the level of business investment following normal recessions, i.e., the deeper the previous recession was, the higher the growth rate of business investment will be. The trend reversion effect is absent when a decline in business investment is associated with a banking crisis. As a consequence, normal recessions do not have significant permanent effects on the level of business investment, whereas banking crises have large and significant permanent effects. The results are in line with important theories and other empirical results on business cycle dynamics.

Suggested Citation

  • Jannsen, Nils, 2015. "The dynamics of business investment following banking crises and normal recessions," Kiel Working Papers 1996, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:1996
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    References listed on IDEAS

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    1. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
    2. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
    3. Jeremy Piger & James Morley & Chang-Jin Kim, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
    4. Hosseinkouchack, Mehdi & Wolters, Maik H., 2013. "Do large recessions reduce output permanently?," Economics Letters, Elsevier, vol. 121(3), pages 516-519.
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    Cited by:

    1. Jannsen, Nils, 2015. "Typische Erholungsphasen der Unternehmensinvestitionen im Anschluss an normale Rezessionen und Bankenkrisen," IfW-Box 2015.17, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    business investment; business cycle; recovery; banking crises; asymmetries;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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