DP7495 Financial Crises and Economic Activity

Author(s): Stephen G Cecchetti, Marion Kohler, Christian Upper
Publication Date: November 2009
Keyword(s): Cost of Crisis, Crises, Output loss, Recovery, Systemic Banking Crisis
JEL(s): E32, E44, G01
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7495

We study the output costs of 40 systemic banking crises since 1980. Most, but not all, crises in our sample coincide with a sharp contraction in output from which it took several years to recover. Our main findings are as follows. First, the current financial crisis is unlike any others in terms of a wide range of economic factors. Second, the output losses of past banking crises were higher when they were accompanied by a currency crisis or when growth was low at the onset of the crisis. When accompanied by a sovereign debt default, a systemic banking crisis was less costly. And, third, there is a tendency for systemic banking crises to have lasting negative output effects.