What’s the Damage? Medium-Term Output Dynamics after Banking Crises

38 Pages Posted: 24 Nov 2009

See all articles by Abdul G. Abiad

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department

Ravi Balakrishnan

International Monetary Fund (IMF) - Fiscal Affairs Department

Petya Koeva Brooks

affiliation not provided to SSRN

Daniel Leigh

International Monetary Fund (IMF)

Irina Tytell

Fidelity Investments; International Monetary Fund (IMF)

Date Written: November 2009

Abstract

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.

Keywords: Asset management, China, People's Republic of, Governance, Investment policy, Pension funds, Pension supervision, Savings promotion

Suggested Citation

Abiad, Abdul G. and Balakrishnan, Ravi and Koeva Brooks, Petya and Leigh, Daniel and Tytell, Irina, What’s the Damage? Medium-Term Output Dynamics after Banking Crises (November 2009). IMF Working Papers, Vol. , pp. 1-37, 2009. Available at SSRN: https://ssrn.com/abstract=1512251

Abdul G. Abiad (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Ravi Balakrishnan

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States
001 202 623 5674 (Phone)
001 202 623 6249 (Fax)

Petya Koeva Brooks

affiliation not provided to SSRN

No Address Available

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Irina Tytell

Fidelity Investments ( email )

245 Summer Street
Boston, MA 02210
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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