Citation

Discussion Paper Details

Please find the details for DP15413 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Financial Policymaking after Crises: Public vs. Private Interest

Author(s): Paul De Grauwe, Yuemei Ji and Orkun Saka

Publication Date: October 2020

Keyword(s):

Programme Area(s): International Macroeconomics and Finance

Abstract: What drives actual government policies after financial crises? In this paper, we first present a simple model of post-crisis policymaking driven by both public and private interests. Using the most comprehensive dataset available on de-facto financial liberalization over seven policy domains across 94 countries between 1973 and 2015, we then establish that financial crises can lead to more government intervention and a process of re-regulation in financial markets. Consistent with a demand channel from public (interests) to policymakers, we find that post-crisis interventions are common only in democratic countries. However, by using a plausibly exogenous political setting -i.e., term limits- muting policymakers' accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that promote their private interests. These privately-motivated interventions cannot be associated with immediate crisis response, operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15413

Bibliographic Reference

De Grauwe, P, Ji, Y and Saka, O. 2020. 'Financial Policymaking after Crises: Public vs. Private Interest'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15413