Financial Crises, Development, and Growth: A Long-term Perspective

Reinhart, Carmen and Reinhart, Vincent (2015): Financial Crises, Development, and Growth: A Long-term Perspective. Published in: World Bank Economic Review , Vol. 29, No. 1 (April 2015): pp. 1-24.

Abstract

Observed over long periods, the upward path of the output of most economies occasionally takes jagged steps down. More often than not, these events are associated with a variety of crises, including systemic banking stresses, exchange rate crashes, a burst of inflation, and a restructuring or default on sovereign debt. Using a large panel of countries over a long period, we document that crises are typically associated with lower medium-term growth. That may be a direct causal channel, a reverse channel, or the influence of some other factors on both growth and finance. But they tend to go together. Given that the forces for convergence of income across countries are estimated to be slow, going off track around a crisis will likely have long-lived consequences for relative economic development.

• Item Type: MPRA Paper
• Language: English
• Keywords: Growth, financial crises, development, inflation
• Subjects: G - Financial Economics > G1 - General Financial Markets; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations; N - Economic History > N2 - Financial Markets and Institutions; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O50 - General

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