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Keynes Fund


Summary of Project Results

The aim of this project is to evaluate the effects of financial crises on medium–term economic growth.

The aim of this project is to evaluate the effects of financial crises on medium–term economic growth. The relationship between financial crises and swings of economic growth have been central to Minsky’s financial long swing hypothesis to explain 20-year fluctuations in economic growth in the USA since the late 19th Century; for Minsky the long swings of economic growth are part of an endogenous path of financial fragility. Reinhart & Rogoff and Reinhart & Reinhart focus on evidence from a panel historical data set for a large number of countries. This project builds on this earlier work by developing historical data sets that allow us to address the relationship between financial crises and economic growth. The project has developed new data for systemic banking crises since c.1870. This work has proved to be important to our understanding of the relationship between financial crises and their effect on real variables such as GDP and industrial production.


Project Output

Rocha, B.T. and Solomou, S., 2015. The effects of systemic banking crises in the inter-war period. Journal of International Money and Finance, 54, pp.35-49.

This paper examines the time-profile of the impact of systemic banking crises on GDP and industrial production using a panel of 24 countries over the inter-war period and compares this to the post-war experience of these countries. We show that banking crises have effects that induce medium-term adjustments on economies. Focusing on an eight-year horizon, it is clear that the negative effects of systemic banking crises last over the entirety of this time-horizon. The effect has been identified for GDP and industrial production. The adverse effect on the industrial sector stands out as being substantially larger in magnitude relative to the macroeconomic effect. Comparing the results across long-run historical periods for the same selection of countries and variables identifies some differences that stand out: the short term macroeconomic impact effects are much larger in the post-war period, suggesting that the propagation channels of shocks operate at a faster pace in the more recent period. Moreover, the time-profile of effects differs, suggesting that modern policies may be modulating the temporal shape of the response to banking crises shocks. However, the broad magnitude of the adverse effect of banking crises remains comparable across these periods.


Rocha, B.T. and Solomou, S., 2019. The effects of systemic banking crises in the first globalisation era (1870-1913), Submitted to Economic History Review.

This paper employs Local Projections methods to estimate response functions of GDP and industrial production to systemic banking crises using a panel of 27 countries over 1870-1913, often seen as the era of the first globalisation or the second industrial revolution. To do so, we provide a new dataset on systemic banking crises for this period, as well as updated GDP and industrial production series, which take into account new research on historical national accounts and historical data reliability issues. We find that systemic events have large macroeconomic effects that can be identified up to a ten-year horizon; in this context, we compare our results to other crisis classifications to highlight the importance of separating systemic banking crises from less severe events in order to avoid attenuation bias in econometric estimates. We also show that the magnitudes of the effects on industrial production are particularly large, which stands in contrast with results for the post-1970 era. Lastly, we provide indirect evidence of the probable role of greater financial depth – via the influence of Protestantism – in amplifying the effects of systemic banking crises.


Project Team

Dr Solomos Solomou (Faculty of Economics, Cambridge)

Dr Bruno T. da Rochai (Católica Porto Business School, Portugal)



Seminar presentations at Oxford, Cambridge and Rutgers.



Dr. Solomos Solomou


Dr Solomos Solomou is University Reader at the Faculty of Economics and Fellow of Peterhouse College, University of Cambridge. His research interests are in Historical Perspective, Long Cycles; Business Cycles; Trade Policy; Exchange Rate Regimes and Economic Performance; Weather and Sectoral Fluctuations.


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