Working Paper: NBER ID: w21287
Authors: Michael D. Bordo; Christopher M. Meissner
Abstract: Why did some countries learn to grow up to financial stability and others not? We explore this question by surveying the key determinants and major policy responses to banking, currency, and debt crises between 1880 and present. We divide countries into three groups: leaders, learners, and non-learners. Each of these groups had very different experiences in terms of long-run economic outcomes, financial development, financial stability, crisis frequency, and their policy responses to crises. The countries that grew up to financial stability had rule of law, democracy, political stability and other institutional features highlighted in the literature on comparative development. We illustrate this by way of case studies for three kinds of financial crises for four countries (Argentina, Australia, Canada, and the United States) over the long-run.
Keywords: financial globalization; financial development; financial crises; institutional quality; emerging markets
JEL Codes: E44; E58; E65; F32; F33; F34; F43; F6; N10; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strong institutional frameworks (O17) | better long-term financial stability (G32) |
| strong institutional frameworks (O17) | better policy responses and crisis management strategies (H12) |
| better policy responses and crisis management strategies (H12) | fewer and less severe financial crises (F65) |
| weak institutions (O17) | repeated financial crises (G01) |
| inadequate reforms (P41) | cyclical pattern of financial instability (E32) |
| ability to adapt and learn from crisis experiences (H12) | better long-term economic outcomes (F69) |
| political stability and competitive political systems (P16) | lower crisis frequency (G01) |