The Real Output Losses Associated with Modern Banking Crises

Bubbles and Crises: The Role of House Prices and Credit

“…Reinhart and Rogoff (2009a), Boyd et al (2005), Laeven and Valencia (2010), Cerra and Saxena (2008)). It has also been shown that crises preceded by credit booms are more costly than other crises, see Jorda et al (2013).…”

The impact of banking sector stability on the real economy

“…1 The second strand of research reaches a clear conclusion: banking crises have usually coincided with, or preceded, a substantial economic slowdown (see among others Hogart, Reis, and Saporta, 2002, Boyd, Kwak, and Smith, 2005, Serwa, 2007, Kroszner, Laeven, and Klingebiel, 2007, Dell'Ariccia, Detragiache, and Rajan, 2008. The literature is however, far less clear regarding whether or not the banking sector is the main trigger of the economic slowdown, as it is difficult to separate cause and effect in the financial sector real economy nexus (Kaminsky and Reinhart, 1999, Demirgüç-Kunt and Detragiache, 1997, 2005, Hilbers, Otker-Robe, Pazarbasioglu, and Johnsen, 2005.…”

Larger crises cost more: Impact of banking sector instability on output growth

“…Some researchers argue that their calculations estimate output losses during the crisis rather than the loss in output "caused" by the crisis (e.g., Boyd, Kwak, Smith, 2005). Others attempt to identify the costs of banking crises by comparing the behavior of crisis countries with neighboring countries that did not face the crisis (Hoggarth, Reis and Saporta, 2002) or by comparing the performance of firms more dependent on external finance with those less dependent (Dell'Ariccia, Detragiache and Rajan, 2005).…”

“…The average estimated output losses associated with banking crises varied considerably in different studies, depending on the sample and the estimation method, from less than 1 up to 8 percentage points of output growth for each year of a crisis (Barro, 2001;Hutchison and Noy, 2005), and from 4 to 20 percent of cumulative GDP loss or more during a crisis (Barro, 2001;Demirgüç-Kunt, Detragiache, and Gupta, 2006;Hoggarth, Reis, and Saporta, 2002;Boyd, Kwak, and Smith, 2005;Hutchison and Noy, 2005). However, the above studies were generally unable to identify whether output losses were caused by banking crises, or vice versa.…”