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The effects of systemic banking crises in the inter-war period

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  • da Rocha, Bruno T.
  • Solomou, Solomos

Abstract

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. Focussing 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 time periods.

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  • da Rocha, Bruno T. & Solomou, Solomos, 2015. "The effects of systemic banking crises in the inter-war period," Journal of International Money and Finance, Elsevier, vol. 54(C), pages 35-49.
    • Handle: RePEc:eee:jimfin:v:54:y:2015:i:c:p:35-49
    DOI: 10.1016/j.jimonfin.2015.02.003
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    3. Lennard, Jason & Kenny, Seán & Horgan, Emma, 2023. "Banks and the Economy: Evidence from the Irish Bank Strike of 1966," CEPR Discussion Papers 18711, C.E.P.R. Discussion Papers.
    4. Bruno Coric & Blanka Peric Skrabic, 2020. "Income Tax Evasion: Recovery from Economic Disasters," CERGE-EI Working Papers wp676, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Bordo, M.D. & Meissner, C.M., 2016. "Fiscal and Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 355-412, Elsevier.
    6. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano & Paolo Piselli, 2018. "Banking crises and business cycle: evidence for Italy(1861-2016)," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 11(1), pages 34-61, October.
    7. Demosthenes Tambakis, 2021. "A Markov chain measure of systemic banking crisis frequency," Applied Economics Letters, Taylor & Francis Journals, vol. 28(16), pages 1351-1356, September.
    8. Daniel Ofori-Sasu & Emmanuel Sarpong-Kumankoma & Saint Kuttu & Elikplimi Komla Agbloyor & Joshua Yindenaba Abor, 2024. "Risk-taking and systemic banking crisis in Africa: do regulatory policy framework provide new insight in threshold models?," Risk Management, Palgrave Macmillan, vol. 26(2), pages 1-37, May.
    9. Kenny, Seán & Lennard, Jason & Turner, John D., 2021. "The macroeconomic effects of banking crises: Evidence from the United Kingdom, 1750–1938," Explorations in Economic History, Elsevier, vol. 79(C).
    10. Colombo, Emilio & Menna, Lorenzo & Tirelli, Patrizio, 2019. "Informality and the labor market effects of financial crises," World Development, Elsevier, vol. 119(C), pages 1-22.
    11. de Ridder, M. & Pfajfar, D., 2017. "Policy Shocks and Wage Rigidities: Empirical Evidence from Regional Effects of National Shocks," Cambridge Working Papers in Economics 1717, Faculty of Economics, University of Cambridge.
    12. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano & Paolo Piselli, 2018. "Banking Crises and Boom-Bust Dynamics: Evidence for Italy (1861-2016)," CESifo Working Paper Series 6972, CESifo.

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    More about this item

    Keywords

    Local projections; Banking crises; Financial crises; Economic history; Inter-war;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • N0 - Economic History - - General
    • N2 - Economic History - - Financial Markets and Institutions
    • G01 - Financial Economics - - General - - - Financial Crises

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