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Long-Term Scarring From The Financial Crisis

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  • Ray Barrell

Abstract

It is useful to look at the distinction between transitory and permanent effects of a crisis. Financial crises normally bring on a recession, and the output costs can be large, as Hoggarth and Saporta (2001) discuss. In the majority of cases since 1970 in the OECD countries output returns to its trend level and there is no permanent effect. However, there may have been a permanent scar on the level of output in Japan after its crisis in the early 1990s, making the crisis and subsequent recession much more costly. This may reflect the nature and length of the crisis, as the banking sector was left to flounder for some years before its rescue toward the end of the crisis period. This appears to have left a permanent scar because risk premia were subsequently higher, and real asset prices have not fully recovered.
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Suggested Citation

  • Ray Barrell, 2009. "Long-Term Scarring From The Financial Crisis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 210(1), pages 36-38, October.
    • Handle: RePEc:sae:niesru:v:210:y:2009:i:1:p:36-38
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    Cited by:

    1. Brownbridge,Martin & Canagarajah,Roy S., 2021. "The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs," Policy Research Working Paper Series 9682, The World Bank.
    2. de-Ramon, Sebastián & Iscenko, Zanna & Osborne, Matthew & Straughan, Michael & Andrews, Peter, 2012. "Measuring the impact of prudential policy on the macroeconomy: A practical application to Basel III and other responses to the financial crisis," MPRA Paper 69423, University Library of Munich, Germany.
    3. Bernd Görzig & Martin Gornig & Laurence Nayman, 2012. "Productivity Transitions in Large Mature Economies: France, Germany and the UK," Chapters, in: Matilde Mas & Robert Stehrer (ed.), Industrial Productivity in Europe, chapter 4, Edward Elgar Publishing.

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