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Financial crises and economic recovery: Cross-country heterogeneity and cross-sectional dependence

Dimitrios Bakas () and Ivan Mendieta-Muñoz

Economics Letters, 2020, vol. 195, issue C

Abstract: This paper estimates the impulse responses of output to financial crises using a local projections panel estimator that accounts for cross-country heterogeneity and cross-sectional dependence. Using a long span of data (1870–2016) for a group of 17 advanced economies we show that once we control for unobserved common factors and parameter heterogeneity in the panel, there is strong evidence of economic recovery within the first 10 years after a financial crisis.

Keywords: Financial crisis; Recessions; Impulse responses; Panel data; Parameter heterogeneity; Cross-sectional dependence (search for similar items in EconPapers)
JEL-codes: C23 E32 E44 G01 N10 N20 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econlet.2020.109435

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