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What causes banking crises? An empirical investigation for the world economy

Le, Vo Phuong Mai, Meenagh, David, Minford, Patrick and Ou, Zhirong 2013. What causes banking crises? An empirical investigation for the world economy. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

We add the Bernanke-Gertler-Gilchrist model to a world model consisting of the US, the Euro-zone and the Rest of the World in order to explore the causes of the banking crisis. We test the model against linear-detrended data and reestimate it by indirect inference; the resulting model passes the Wald test only on outputs in the two countries. We then extract the model's implied residuals on unfiltered data to replicate how the model predicts the crisis. Banking shocks worsen the crisis but 'traditional' shocks explain the bulk of the crisis; the non-stationarity of the productivity shocks plays a key role. Crises occur when there is a 'run' of bad shocks; based on this sample Great Recessions occur on average once every quarter century. Financial shocks on their own, even when extreme, do not cause crises - provided the government acts swiftly to counteract such a shock as happened in this sample.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Publisher: Cardiff University
Date of First Compliant Deposit: 30 March 2016
Last Modified: 21 May 2019 16:01
URI: http://orca.cf.ac.uk/id/eprint/77949

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Cited 6 times in Google Scholar. View in Google Scholar

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