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Faculty of Economics

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Teulings, C.N. and Zubanov, N.

Is economic recovery a myth? robust estimation of impulse responses

Journal of Applied Econometrics


Abstract: 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.

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Papers and Publications

Recent Publications

Bhattacharya, D., Dupas, P. and Kanaya, S. Demand and Welfare Analysis in Discrete Choice Models with Social Interactions Review of Economic Studies, accepted [2023]

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics [2021]

Gallo, E. and Yan, C. Efficiency and Equilibrium in Network Games: An Experiment Review of Economics and Statistics, accepted [2022]

Bhattacharya, D. Nonparametric Approaches to Empirical Welfare Analysis Journal of Economic Literature, forthcoming [2023]