CRISIS, POTENTIAL OUTPUT AND HYSTERESIS

Annabelle Mourougane

No 2015-631, Working Papers from Department of Research, Ipag Business School

Abstract: This paper seeks to estimate the effects of financial crises on potential output accounting for hysteresis on a panel of 34 OECD economies. Hysteresis amplifies the effect of financial crises on potential output. The difference is marginal in the first years (below 0.5 percentage point) but grows over time to reach some 1.5 percentage points after four years, almost doubling the crisis impact on potential output at this horizon. These results are robust to a range of specifications. On average across crisis and country the maximum crisis effect on potential output is about 3 %. The effect appears to be more severe for the 2008 crisis though, with a maximum impact above 4 % on average for G7 countries. Small euro area countries and the United Kingdom appear to have suffered from bigger losses than the United States and Canada. Large euro area countries and Japan are estimated to be in an intermediary situation. Lastly, the empirical work undertaken in this paper suggests that financial crises have had on average an effect on potential growth in the first years following the crisis but not after.

Pages: 33 pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-eec
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Related works:
Journal Article: Crisis, potential output and hysteresis (2017)
Journal Article: Crisis, potential output and hysteresis (2017)
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