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How do institutions affect output recovery after financial crises?

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  • Chen, Hsien-Yi
  • Chen, Sheng-Syan
  • Chang, Chong-Chuo

Abstract

This study examines whether a country’s institutional quality can affect its output recovery after the recessions caused by financial crises. Utilizing a sample of 66 countries that experienced various financial crises during the period 1985–2010, we find that the quality of government institutions is negatively associated with the duration of recovery as well as the depth and severity of output losses during recessions. The results remained valid even after accounting for potential endogeneity. Moreover, institutional quality’s ability to improve output recovery is more pronounced for countries with the largest output losses, when coupled with an expansionary monetary policy, in emerging economies, during banking and sovereign debt crises, and in the 1990s.

Suggested Citation

  • Chen, Hsien-Yi & Chen, Sheng-Syan & Chang, Chong-Chuo, 2024. "How do institutions affect output recovery after financial crises?," Journal of International Money and Finance, Elsevier, vol. 146(C).
    • Handle: RePEc:eee:jimfin:v:146:y:2024:i:c:s0261560624001074
    DOI: 10.1016/j.jimonfin.2024.103120
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    More about this item

    Keywords

    Financial crisis; Quality of institution; Output recovery; Recession;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G01 - Financial Economics - - General - - - Financial Crises
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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