Abstract

https://ssrn.com/abstract=1597603
 
 

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Is Economic Recovery a Myth? Robust Estimation of Impulse Responses


Coen N. Teulings


University of Amsterdam; University of Cambridge

Nick Zubanov


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

April 2010

CESifo Working Paper Series No. 3027

Abstract:     
There is a lively debate on the persistence of the current banking crisis' impact on GDP. Impulse Response Functions (IRF) estimated by Cerra and Saxena (2008) suggest that the effects of earlier crises were long-lasting. We show that standard estimates of IRFs are highly sensitive to misspecification of the underlying data generation process. Direct estimation of IRFs by a methodology similar to Jorda's (2005) local projection method is robust to misspecifications of the data generation process but yields biased estimates when country fixed effects are added. We propose a simple method to deal with this bias, which we apply to panel data from 99 countries for the period 1974-2001. Our estimates suggest that an average banking crisis leads to an output loss of around 10 percent with little sign of recovery. GDP losses from banking crises are more severe for African countries and economies in transition.

Number of Pages in PDF File: 27

Keywords: banking crisis, impulse response, panel data

JEL Classification: G01, E27, C53


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Date posted: May 2, 2010  

Suggested Citation

Teulings, Coen N. and Zubanov, Nick, Is Economic Recovery a Myth? Robust Estimation of Impulse Responses (April 2010). CESifo Working Paper Series No. 3027. Available at SSRN: https://ssrn.com/abstract=1597603

Contact Information

Coen N. Teulings (Contact Author)
University of Amsterdam ( email )
Spui 21
Amsterdam, 1018 WB
Netherlands
University of Cambridge ( email )
Trinity Ln
Cambridge, CB2 1TN
United Kingdom
Nick Zubanov
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
HOME PAGE: http://www.eur.nl/ese/english/about_ese/staff/profiel_mis/10636/
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