Financial Policymaking after Crises: Public vs. Private Interest

Paul De Grauwe, Orkun Saka and Yuemei Ji ()

No 15413, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What drives actual government policies after financial crises? In this paper, we fi rst present a simple model of post-crisis policymaking driven by both public and private interests. Using the most comprehensive dataset available on de-facto financial liberalization over seven policy domains across 94 countries between 1973 and 2015, we then establish that fi nancial crises can lead to more government intervention and a process of re-regulation in financial markets. Consistent with a demand channel from public (interests) to policymakers, we fi nd that post-crisis interventions are common only in democratic countries. However, by using a plausibly exogenous political setting -i.e., term limits- muting policymakers' accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that promote their private interests. These privately-motivated interventions cannot be associated with immediate crisis response, operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

Date: 2020-10
New Economics Papers: this item is included in nep-cba
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Related works:
Working Paper: Financial Policymaking after Crises: Public vs. Private Interests (2021)
Working Paper: Financial policymaking after crises: Public vs. private interests (2021)
Working Paper: Financial policymaking after crises: public vs. private interests (2020)
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