The Aftermath of Financial Crises
Kenneth Rogoff and
Carmen Reinhart
No 7209, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Not surprisingly, banking crises are associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls an average of over 9 percent, although the duration of the downturn is considerably shorter than for unemployment. The real value of government debt tends to explode, rising an average of 86 percent in the major post-World War II episodes. The main cause of debt explosions is usually not the widely cited costs of bailing out and recapitalizing the banking system. The collapse in tax revenues in the wake of deep and prolonged economic contractions is a critical factor in explaining the large budget deficits and increases in debt that follow the crisis. Our estimates of the rise in government debt are likely to be conservative, as these do not include increases in government guarantees, which also expand briskly during these episodes.
Keywords: Financial crisies; Real estate; Unemployment; Duration (search for similar items in EconPapers)
JEL-codes: E44 F30 N20 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-fdg, nep-fmk, nep-his, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (720)
Downloads: (external link)
https://cepr.org/publications/DP7209 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: The Aftermath of Financial Crises (2009) 
Working Paper: The Aftermath of Financial Crises (2009) 
Working Paper: The Aftermath of Financial Crises (2009) 
Working Paper: Las secuelas de las crisis financieras (2008) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:7209
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7209
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().