The Aftermath of Financial Crises - Academic Paper

[ringledman]

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An interesting read on the historical average falls and length of downturn following a banking crises.

Key points that history shows -

- Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics. ​

- Asset market collapses are deep and prolonged. ​

- 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. ​

- The aftermath of banking crises is 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 (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, 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.​

 

[Spondulicks]

Will the Government offer something coherent which the people can believe or will it engage in smoke and mirrors in order to excuse their own part in the credit excess and spending blowout? If there is no effort at analysis and no effort to break out of a business as usual mode, the crisis is likely to be twice as long as the government predicts or wishes.