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Keynes Fund


Research Output

Dr. Solomos Solomou - Real Financial Linkages and Start-Stop Phases of Economic Growth (JHLG).

Banking Crises and Economic Recoveries, Bruno Rocha and Solomos Solomou

Abstract: This paper examines the impact of banking crises on the recovery profiles of economies using a panel of 67 countries over the period 1950-2011. To date much of the literature finds that banking crises have permanent effects on economies. Using more robust Local Projection methods to derive average Impulse Response Functions we show that although banking crises have effects that induce medium-term adjustments these effects are not permanent. In order to be able to identify any long-run (permanent) or low frequency (cyclical) effects arising from banking crises it is essential to extend the time-dimension of the evidence. To date many studies have used large cross-section (country) information but limited time-series information, often drawing inferences about the long run from less than 30 years of observations.

The estimated effects of banking crises are average effects; in any particular country or period such impacts may differ substantially from the mean. The paper also explores the observed heterogeneity in terms of various characteristics, such as income level, financial depth and policy regarding capital account liberalisation.