A reader, in response to my dispute with Paul Krugman
, brings to my attention an article in the March 2008 issue of the American Economic Review
Growth Dynamics: The Myth of Economic Recovery
Valerie Cerra and Sweta Chaman Saxena
Using panel data for a large set of high-income, emerging market, developing, and transition countries, we find robust evidence that the large output loss from financial crises and some types of political crises is highly persistent. The results on financial crises are also highly robust to the assumption on exogeneity. Moreover, we find strong evidence of growth overoptimism before financial crises. We also find a distinction between the output impact of civil wars versus other crises, in that there is a partial output rebound for civil wars but no significant rebound for financial crises or the other political crises.