Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables

GATE Working Paper No. 1014

27 Pages Posted: 15 Jun 2010

See all articles by Davide Furceri

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Aleksandra Zdzienicka

International Monetary Fund (IMF)

Date Written: June 2010

Abstract

The aim of this work is to assess the short and medium term impact of banking crises on developing economies. Using an unbalanced panel of 159 countries from 1970 to 2006, the paper shows that banking crises produce significant output losses, both in the short and in the medium term. The effect depends on structural and policy variables. Output losses are larger for relatively more wealthy economies, characterized by a higher level of financial deepening and larger current account imbalances. Flexible exchange rates, fiscal and monetary policy have been found to be efficient tools to attenuate the effect of the crises. Among banking intervention policies, liquidity support resulted to be the one associated with lower output losses.

Keywords: Output Losses, Financial Crisis

JEL Classification: G1, E6

Suggested Citation

Furceri, Davide and Zdzienicka, Aleksandra, Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables (June 2010). GATE Working Paper No. 1014, Available at SSRN: https://ssrn.com/abstract=1625249 or http://dx.doi.org/10.2139/ssrn.1625249

Davide Furceri (Contact Author)

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Aleksandra Zdzienicka

International Monetary Fund (IMF) ( email )

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

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