IS ECONOMIC RECOVERY A MYTH? ROBUST ESTIMATION OF IMPULSE RESPONSES
Open accessAbstract
SUMMARY: We estimate the impulse response function (IRF) of GDP to a banking crisis using an extension of the local projections method. We demonstrate that, though robust to misspecifications of the data‐generating process, this method suffers from a hitherto unnoticed bias which increases with the forecast horizon. We propose a correction to this bias and show through simulations that it works well. Applying our corrected local projections estimator to the data from a panel of 99 countries observed between 1974 and 2001, we find that an average banking crisis yields a GDP loss of just under 10% in 10 years, with little sign of recovery. Like the original local projections method, our extension of it is widely applicable. Copyright © 2013 John Wiley & Sons, Ltd.
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- Authors
- Teulings, C. N., & Zubanov, N.
- Affiliations
- CPB Netherlands Bureau for Economic Policy Analysis (NL)
- Erasmus University Rotterdam Erasmus School of Economics Rotterdam The Netherlands
- ORCID
- Teulings, Coen N.
- Venue
- Journal of Applied Econometrics
- Publisher
- Wiley
- Published
- 2013-06-20
- Volume
- 29
- Issue
- 3
- Pages
- 497-514
- ISSN
- 0883-7252 (ISSN-L)
- 1099-1255
- OpenAlex
- W1902470918
- Cited by
- 288
- References
- 0
- Citations by year
- 2026: 23 · 2025: 27 · 2024: 25 · 2023: 29 · 2022: 31 · 2021: 29 · 2020: 29 · 2019: 18 · 2018: 20 · 2017: 9 · 2016: 16 · 2015: 16 · 2014: 4 · 2013: 2 · 2012: 4
- FWCI
- 34.86
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Journal of Applied Econometrics (publishedVersion)
- UvA-DARE (University of Amsterdam) (publishedVersion)
- KOPS (University of Konstanz) (submittedVersion)
- EUR Research Repository (Erasmus University Rotterdam) (submittedVersion)
- Data Archiving and Networked Services (DANS) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Social Sciences › Economics, Econometrics and Finance › Finance › Global Financial Crisis and Policies
- Keywords
- banking crisis, GDP loss, impulse response functions, local projections, robust estimation, bias correction, forecast horizon, economic recovery, cross-country panel data
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