The Impact of Banking Crises on Revenues and Government Debt: A Historical Analysis, Slide di Mercato Finanziario

Scarica The Impact of Banking Crises on Revenues and Government Debt: A Historical Analysis e più Slide in PDF di Mercato Finanziario solo su Docsity! Beyond Bailout Costs: the impact of a crisis on revenues and debt The impact of a crisis on revenues • Also in an historical perspective, the most common policy response to a banking crisis is the bailout of the banking sector. • In the previous lessons we have investigated the adverse impact of banking crises on economic activity. Now we focus on direct consequences of the recession on tax revenues, thus on government finances. • Reinhart and Rogoff (2009) calculated the average of revenues growth three years before, during, and three years after a banking crises, distinguishing the period pre-World War II, and after World War II. Government debt buildup • The rise in debt is very strong. On average, the stock of debt nearly doubles (see figure 10.10, p. 170). • If we index the level of debt to 100 during the year of the banking crisis, we see that the stock of debt rises to 186 three years after the crisis. • This is the average growth, calculated with respect to several banking crises. For the banking crises in Colombia and Chile, the rise was much higher. To conclude…. • Until now, we have examined the crises that occurred before the 2007 crisis. • Historical experience of financial crises has shown that there are strong similarities between advanced and emerging countries. • This is not considered by policy makers that continue to think that advanced economies are special. • Frequency and duration of banking crises are similar. • High public debt, declining housing and equity prices are associated with banking crises. • Often recessions are associated with severe banking crises. • «In the theory of banking crises they are seen as an amplification mechanism and not necessarily as an exogenous causal mechanism.» (Reinhart and Rogoff, 2009, p. 172). References • The lesson is based on: Reinhart C., Rogoff K., This time is different. Eight centuries of financial folly, Princeton University Press, 2009, chapter 10, «Banking crises», pp. 166-173.