Working Paper: CEPR ID: DP13776
Authors: Orkun Saka; Nauro F. Campos; Paul De Grauwe; Yuemei Ji; Angelo Martelli
Abstract: Financial crisis can trigger policy reversals, i.e. they can lead to a process of re-regulation of financial markets. Using a recent comprehensive dataset on financialliberalization across 94 countries for the period between 1973 and 2015, we formallytest the validity of this prediction for the member states of the European Union as wellas for a global sample. We contribute by (a) using a new up-to-date dataset of reformsand crises and (b) subjecting it to a combination of diff erence-in-di fferences and localprojection estimations. In the global sample, our fi ndings consistently confi rm thatcrises lead to a reversal of liberal reforms, suggesting that governments react to crises byre-regulating financial markets. However, in a dynamic setting with impulse-responses,we also find that these new regulations are only temporary and a liberalization processrestarts a few years after a financial crisis. One decade later, fi nancial markets havereturned to their pre-crisis level of liberalization. In the EU sample, however, we donot fi nd sucient evidence to support these observations.
Keywords: financial reforms; financial crises; reform reversals; local projections
JEL Codes: G01; G28; P11; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crises (G01) | financial liberalization (F30) |
| financial crises (G01) | government intervention (O25) |
| sovereign debt defaults (H63) | financial liberalization (F30) |
| currency crises (F31) | financial liberalization (F30) |
| banking crises (G01) | financial liberalization (F30) |
| financial crises (G01) | reversals in liberal reforms (P26) |
| financial crises (G01) | tighter regulations (G18) |
| financial crises (G01) | bailouts (H81) |
| financial crises (G01) | gradual resumption of liberalization (P33) |
| financial crises (G01) | return to pre-crisis levels of liberalization (E69) |