New (preliminary) work from Christy and David Romer:
This paper revisits the aftermath of financial crises in advanced countries in the decades before the Great Recession. We construct a new series on financial distress in 24 OECD countries for the period 1967–2007. The series is based on narrative assessments of the health of countries’ financial systems that were made in real time; and it classifies financial distress on a relatively fine scale, rather than treating it as a 0-1 variable. We find little support for the conventional wisdom that the output declines following financial crises are uniformly large and long-lasting. Rather, the declines are highly variable, on average only moderate, and often temporary. One important driver of the variation in outcomes across crises appears to be the severity and persistence of the financial distress itself: when distress is particularly extreme or continues for an extended period, the aftermath of a crisis is worse.