Output Loss and Recovery from Banking and Currency Crises: Estimation Issues

35 Pages Posted: 28 Dec 2008

Date Written: December, 26 2008


Relatively few studies in the financial crisis literature have attempted to examine the connection between financial crises and the real economy, in part due to concerns regarding an appropriate methodology to use in estimating output losses associated with a crisis. Among these studies, two methodologies (a dummy variable approach and an output gap approach) are employed to capture the magnitude of output reductions. The analytical comparison in this study suggests that the latter approach is preferred, but is itself subject to many controversial estimation issues. The estimated output losses for individual crisis episodes seem to be sensitive to how these estimation criteria are defined. This study also provides a review of empirical studies that investigate crisis-response policies and domestic regulatory and institutional structures that allow governments to respond in a timely and effectively manner to crises, thereby reducing the severity of output losses.

Keywords: Output Loss, Banking Crisis, Currency Crisis

JEL Classification: F3, F4

Suggested Citation

Prabha, Apanard Penny, Output Loss and Recovery from Banking and Currency Crises: Estimation Issues (December, 26 2008). Available at SSRN: https://ssrn.com/abstract=1320730 or http://dx.doi.org/10.2139/ssrn.1320730

Apanard Penny Prabha (Contact Author)

University of Illinois at Springfield ( email )

Springfield, IL 62703
United States