How costly are financial crises, and have they grown more frequent or severe over time?

Question 1

How costly are financial crises, and have they grown more frequent or severe over time?

Answer 1

• Measuring the costs of financial
  crises -
  o output loss - financial crises = recessions
  o unemployment - due to businesses contracting and investment falling
  o Bailouts & stimulus packages
  o Debt Accumulation - interventions can increase public debt
  o Inequality
  o Political instability
  o Global spillovers - can distrupt global trade and financial markets
• Have financial crises grown more
  frequent -
  o Historical trends
  o Empirical evidence - Reinhart and Rogoff (2009), Bordo et al (2008)
• Have financial crises grown more severe -
  o Severity of modern crises
  o Factors contributing to increased severity - globalisation, leverage and risk-taking, larger financial systems
  o Improved crisis responses
  o Bordo et al (2008)
• Costs over time -
  o 19th & early 20th century crises
  o Modern crises