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The real impact of financial crises

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  • Elias Brandt
  • Scott Dressler
  • Erwan Quintin

Abstract

Output falls precipitously in most emerging nations that experience financial crises. The authors conjecture that a significant part of the real impact of financial crises is due to the fact that during turbulent times firms choose to leave a large fraction of productive resources idle until business conditions improve. In the case of Mexicos 199495 crisis, they calculate that capital utilization could account for as much as half the drop in standard measures of total factor productivity. Capital utilization matters much more during financial crises than during other periods, they argue, because crises create ideal conditions for large swings in utilization rates.

Suggested Citation

  • Elias Brandt & Scott Dressler & Erwan Quintin, 2004. "The real impact of financial crises," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, pages 1-15.
    • Handle: RePEc:fip:fedder:y:2004:p:1-15:n:01
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    Cited by:

    1. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 295-330, March.
    2. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    3. Ryota Nakatani, 2017. "The Effects of Productivity Shocks, Financial Shocks, and Monetary Policy on Exchange Rates: An Application of the Currency Crisis Model and Implications for Emerging Market Crises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2545-2561, November.
    4. Felipe Meza & Carlos Urrutia, 2008. "Great Appreciations: Accounting for the Real Exchange Rate in Mexico, 1988-2002," Working Papers 0807, Centro de Investigacion Economica, ITAM.
    5. Juttner, D. Johannes & Chung, David & Leung, Wayne, 2006. "Emerging market bond returns--An investor perspective," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 105-121, April.
    6. Bertrand Gruss & Karel Mertens, 2009. "Regime Switching Interest Rates and Fluctuations in Emerging Markets," Economics Working Papers ECO2009/22, European University Institute.
    7. Sangeeta Pratap & Carlos Urrutia, 2012. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 336-358, July.
    8. Andrés Fernández & Felipe Meza, 2011. "Labor, Output and Consumption in Business Cycle Models of Emerging Economies: A Comment," Documentos CEDE 9249, Universidad de los Andes, Facultad de Economía, CEDE.

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