The Effects of Crisis Management Measures on the Economy: Evidence from Past Crises

• Název práce v češtině: Dopady nástrojů řešení krizí na ekonomiku: evidence z minulých krizí
• Název v anglickém jazyce: The Effects of Crisis Management Measures on the Economy: Evidence from Past Crises
• Klíčová slova: Státní podpora, Bailout, Ekonomický růst, Finanční stabilita, Bankovní krize
• Klíčová slova anglicky: State financial support, Bailout, Economic growth, Financial stability, Systemic banking crisis
• Akademický rok vypsání: 2022/2023
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: doc. PhDr. Adam Geršl, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 19.06.2023
• Datum zadání: 19.06.2023
• Datum a čas obhajoby: 18.09.2024 09:00
• Místo konání obhajoby: Opletalova, O206, místnost. č. 206
• Datum odevzdání elektronické podoby: 31.07.2024
• Datum proběhlé obhajoby: 18.09.2024
• Oponenti: prof. Ing. et Ing. Luboš Komárek, M.Sc., MBA, Ph.D.

Zásady pro vypracování

Motivation
With U.S. government guaranteeing uninsured deposits of collapsed Silicon Valley Bank and Signature Bank and Swiss government orchestrating rescue and takeover of Credit Suisse bank, the role of government in resolving banks’ troubles is once again a topical theme. In recent decades, we have witnessed a large number of systemic banking crises, as well as many crisis management measures (CMMs) taken by the authorities to tackle them. As these tools often consume a significant amount of taxpayers’ money, it is relevant to ask whether they have been effective in achieving their objective of preserving soundness of the real economy and financial markets or contributing to their recovery.

Several studies of the effect of different CMMs on the real economy have been conducted in recent history. These include tools like bank holidays, deposit freezes, liquidity support, liabilities guarantees, nationalizations, or recapitalizations. Detragiache and Ho (2010) examined 40 banking crises in different countries across the world and found out that measures with relatively greater fiscal burden are associated with worse economic performance after the crisis and delayed recovery. On the contrary, Barucci et al. (2019) showed that the state financial support across the EU countries between 2008 and 2016 positively impacted their GDP and gross fixed capital formation. In terms of specific measures, these effects were driven by guarantees and recapitalizations. Overall, the majority of studies conducted before the global financial crisis indicate either no, or even negative effect of bailout policies on the recovery of the real economy. After the crisis, researchers often focused on studying how recapitalization programs affected balance sheets of banks and how effectively they boosted credit supply. For instance, Brei et al. (2013) suggest that a critical threshold of the amount of additional capital provided exists, which must be exceeded in order to translate this funding into greater lending. Giannetti and Simonov (2013) confirmed this finding, adding that too small capital injections even encourage the evergreening of nonperforming loans.

Hypotheses
Hypothesis #1: Crisis management measures differ in their impact on the real economy and credit recovery after the crisis.
Hypothesis #2: Crisis management measures associated with higher fiscal costs contribute to a faster recovery of the economic performance and credit after the crisis, reducing its duration and economic costs.
Hypothesis #3: The developed countries are able to reduce the economic costs and duration of the crisis more effectively.

Methodology
As a core source of data, I intend to use the latest systemic banking crises database by Laeven and Valencia (2020). This widely used research paper was originally published in 2008 and has been updated several times since then. Now it provides information on 151 systemic banking crisis which appeared between 1970 and 2017 all around the world. Specifically, the data on timing, policy responses taken to resolve the crisis and fiscal and output costs related are identified. For almost half of the total number of crises, additional information regarding the CMMs is attached. I will rely on these statistics to create a panel dataset of dummy variables indicating the presence of a specific measure. If the information is not detailed enough, an additional search will be made using national resources and published documents. I will also attempt to extend the information about the CMMs applied for some of those countries for which this information was not available in the Laeven and Valencia (2020) database. Then, I will examine the effect of various measures on the economy and credit as represented by the GDP and credit to private sector. I will also control for other macroeconomic and country-specific variables.

With cross-country panel data at hand, the use a fixed effects estimation method seems appropriate. The two-way fixed effects regression allows to control for country- and time-specific trends. Apart from Barucci et al. (2019) in the already mentioned study, this approach was also followed by Laeven and Valencia (2012) when examining the effectiveness of government guarantees on bank liabilities in a sample of 42 systemic banking crisis.

There are some issues associated with this kind of analysis as described in the existing literature. Sample selection bias might arise when analysing only countries which were hit by a crisis. Laeven and Valencia (2013) solve this problem by including other countries in their sample that did not experience any crisis during the examined period. Furthermore, studies also point to possible endogeneity bias caused by the simultaneity of government interventions and real economic activity. Authors often provide additional regression with instrumental variables to address this issue and to provide a robustness test. Honohan and Klingebiel (2003) used political and institutional instruments such as corruption and law and order tradition, while Detragiache and Ho (2010) included an indicator of a country’s political system. I plan to do the same.

Seznam odborné literatury

Barucci, E., Colozza, T., Milani, C., 2019. The effect of bank bail-outs in the EU. J. Int. Money Finance 95, 14–26. https://doi.org/10.1016/j.jimonfin.2019.03.004
Brei, M., Gambacorta, L., von Peter, G., 2013. Rescue packages and bank lending. J. Bank. Finance 37, 490–505. https://doi.org/10.1016/j.jbankfin.2012.09.010
Detragiache, E., Ho, G., 2010. Responding to Banking Crises: Lessons from Cross-Country Evidence. IMF Work. Pap., Working Paper No. 2010/018.
Giannetti, M., Simonov, A., 2013. On the Real Effects of Bank Bailouts: Micro Evidence from Japan. Am. Econ. J. Macroecon. 5, 135–167. https://doi.org/10.1257/mac.5.1.135
Honohan, P., Klingebiel, D., 2003. The fiscal cost implications of an accommodating approach to banking crises. J. Bank. Finance 27, 1539–1560. https://doi.org/10.1016/S0378-4266(02)00276-5
Laeven, L., Valencia, F., 2020. Systemic Banking Crises Database II. IMF Econ. Rev. 68, 307–361. https://doi.org/10.1057/s41308-020-00107-3
Laeven, L., Valencia, F., 2013. The Real Effects of Financial Sector Interventions during Crises. J. Money Credit Bank. 45, 147–177. https://doi.org/10.1111/j.1538-4616.2012.00565.x
Laeven, L., Valencia, F., 2012. The use of blanket guarantees in banking crises. J. Int. Money Finance 31, 1220–1248. https://doi.org/10.1016/j.jimonfin.2012.01.014

Předběžná náplň práce

Expected Contribution

The existing literature is not conclusive about the exact effects of specific CMMs on the economy. My research will use a broader set of past crises by combining the samples from previous related studies and additional information from available sources. I will thus be able to better distinguish the effects of various CMMs as well as to compare the policies across countries with different levels of development. The results of my analyses might be used to provide better information about how to tackle possible future crises more effectively as they will hopefully evaluate and rank different measures in terms of their impact on the economy, credit, and the length and the total costs of crises.

Outline

1. Introduction: motivation for the research.
2. Crisis management measures: description and use in previous crises.
3. Literature review: summary of existing literature on related topics.
4. Data: sources of data, description of variables.
5. Methodology: use of methods, specifications of models for estimation.
6. Results: presentation of results, discussion, comparison.
7. Conclusion: summary of findings, their usefulness and possible future extension of study.