The macroeconomic effects of banking crises: evidence from the United Kingdom, 1750-1938

Publication date: 1 Sep 2017 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Lennard, J | External Author(s): Kenny, S; Turner, John D | JEL Classification: E32, E44, G21, N13, N14, N23, N24 | NIESR Discussion Paper Number: 478

This paper investigates the macroeconomic effects of UK banking crises over the period 1750 to 1938. We construct a new annual banking crisis series using bank failure rate data, which suggests that the incidence of banking crises was every 30 or so years. Using our new series and a narrative approach to identify exogenous banking crises, we find that industrial production contracts by 8.2 per cent in the year following a crisis. This finding is robust to a battery of checks, including different VAR specifications, different thresholds for the crisis indicator, and the use of a capital-weighted bank failure rate.

Keyword tags: 
banking crisis
bank failures
narrative approach
United Kingdom

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