Political Booms, Financial Crises

52 Pages Posted: 4 Aug 2014 Last revised: 6 Aug 2022

See all articles by Helios Herrera

Helios Herrera

HEC Montreal

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

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Date Written: July 2014

Abstract

We show that political booms, measured by the rise in governments' popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises. We provide evidence of the relevance of this reputation mechanism.

Suggested Citation

Herrera, Helios and Ordoñez, Guillermo and Trebesch, Christoph, Political Booms, Financial Crises (July 2014). NBER Working Paper No. w20346, Available at SSRN: https://ssrn.com/abstract=2475693

Helios Herrera (Contact Author)

HEC Montreal ( email )

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Montréal, Quebec H3T 2A7
Canada

HOME PAGE: http://www.hec.ca/en/profs/helios.herrera.html

Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christoph Trebesch

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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