New Evidence on the Aftermath of Financial Crises in Advanced Countries

Abstract

Even before the collapse of Lehman Brothers set off a worldwide financial meltdown, economists had shown renewed interest in financial crises. The experiences of Japan and the Nordic countries in the early 1990s and the East Asian crisis of the late 1990s had demonstrated that financial crises were not just a topic of historical interest. Scholars began to examine what previous experiences could tell us about the causes and effects of severe financial disruptions. Not surprisingly, the 2008 crisis added even greater urgency to this research agenda.While researching the aftermaths of crisis is unquestionably important, it is also difficult. Before one can begin to evaluate what typically happens after a crisis, one has to know when crises occurred. But what counts as a "crisis" is far from obvious.

Phillips Lecture – Why Some Times Are Different: Macroeconomic Policy and the Aftermath of Financial Crises

“… New measure of financial distress. Notes : See Romer and Romer () for the details of the derivation of the new measure. The data are available semi‐annually from 1967:1 to 2012:2.…”

The Long-Run Real Effects of Banking Crises: Firm-Level Investment Dynamics and the Role of Wage Rigidity

“…First, identifying exogenous shocks to credit supply is difficult when using aggregate data and, second, "measuring recovery" with aggregate data suffers from the lack of a credible counterfactual of how economic activity would have evolved in the absence of a banking crisis. In the light of these empirical challenges, Romer and Romer (2017) suggest that "the most fruitful approach to establishing causation may lie in combining natural experiments with detailed cross-section evidence." Studying the long-run effects of credit market disruptions on real firm outcomes, my paper provides such quasi-experimental firm-level evidence.…”

“…The protracted nature of the recovery as well as considerable heterogeneity in the recovery paths across countries has sparked an ongoing debate about the long-run real effects of banking crises, with many important questions remaining unresolved (Romer and Romer, 2017). To what extent does the aftermath of banking crises represent a causal relationship between credit market disruptions and economic activity?…”

“…As identifying exogenous shocks to credit supply is difficult when using aggregate data, Romer and Romer (2017) suggest that "the most fruitful approach to establishing causation may lie in combining natural experiments with detailed cross-section evidence." My paper contributes to this literature by providing such quasi-experimental micro-level evidence.…”

The Money View Versus the Credit View

“…These examples likely underscore the importance of cross-checking traditional chronologies of financial crises-a process that has taken place in studies conducted since Schularick and Taylor (2012) appeared, especially by Romer and Romer (2017). 5 However, as our interest is in the relationship between financial (money and credit) aggregates and the economy-rather than in the relationship between financial aggregates and financial crises-we do not pursue the matter of financial-crisis chronology further.…”