What’s the Damage? Medium-term Output Dynamics After Banking Crises

By Abdul d Abiad, Petya Koeva Brooks, Irina Tytell, Daniel Leigh, Ravi Balakrishnan

November 1, 2009

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Abdul d Abiad, Petya Koeva Brooks, Irina Tytell, Daniel Leigh, and Ravi Balakrishnan. What’s the Damage? Medium-term Output Dynamics After Banking Crises, (USA: International Monetary Fund, 2009) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the medium-term behavior of output following banking crises, and its association with pre- and post-crisis conditions and policies. We find that output tends to be depressed substantially following banking crises, with no rebound to the precrisis trend. However, growth does eventually tend to return to its precrisis rate, with substantial crosscountry variation in outcomes. The depressed path of output typically results from reductions of roughly equal proportions in the employment rate, the capital-to-labor ratio, and total factor productivity. Initial conditions that are strongly associated with medium-run output losses include the short-run change in output, the occurrence of a joint banking-and-currency crisis, and a high precrisis level of investment. Short-run fiscal and monetary stimulus is associated with smaller medium-run deviations of output and growth from the precrisis trend.

Subject: Banking crises, Currency crises, Financial crises, Structural reforms, Total factor productivity

Keywords: Crisis trend, Growth performance, Investment share result, Output dynamics, Output loss, Severity control variable, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/245
Stock No:

WPIEA2009245
ISBN:

9781451873924
ISSN:

1018-5941

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