Is Economic Recovery a Myth? Robust Estimation of Impulse Responses

Coen N. Teulings and Nick Zubanov
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Coen N. Teulings: CPB, The Hague, and University of Amsterdam

No 10-040/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: See the publication in the 'Journal of Applied Econometrics' (2014).

We estimate the impulse response function (IRF) of GDP toa banking crisis, applying an extension of the local projectionsmethod developed in Jorda (2005). This method is shown to bemore robust to misspecification than calculating IRFs analytically. However, it suffers from a hitherto unnoticed systematicbias which increases with the forecast horizon. We propose asimple correction to this bias, which our Monte Carlo simulations show works well. Applying our corrected local projectionsestimator to a panel of 99 countries observed between 1974-2001,we find that an average banking crisis yields a long-term GDP lossof around 10 percent with little sign of recovery within 10 years.GDP losses to banking crises are even more severe in Africancountries. Like the original Jorda's (2005) method, our extensionof it is quite widely applicable.

Keywords: banking crisis; impulse response; panel data (search for similar items in EconPapers)
JEL-codes: C53 E27 G01 (search for similar items in EconPapers)
Date: 2010-04-13, Revised 2011-07-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Is economic recovery a myth? Robust estimation of impulse responses (2011)
Working Paper: Is Economic Recovery a Myth? Robust Estimation of Impulse Responses (2010)
Working Paper: Is Economic Recovery a Myth? Robust Estimation of Impulse Responses (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100040

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