Fiscal and Financial Crises

Michael Bordo, C. M. Meissner

Research output: Chapter in Book/Report/Conference proceedingChapter

5 Scopus citations


Interconnections between banking crises and fiscal crises have a long history. We document the long-run evolution from classic banking panics toward modern banking crises where financial guarantees are associated with crisis resolution. Recent crises feature a feedback loop between bank guarantees and bank holdings of local sovereign debt thereby linking financial to fiscal crises. Earlier examples include the crises in Chile (early 1980s), Japan (1990), Sweden and Finland (1991), and the Asian crisis (1997). We discuss the evolution in economic theorizing on crises since the 1950s, and then provide an overview of the long-run evolution of connections between different types of crises. Next we explore the empirics of financial crises. We discuss the methodological issue of crisis measurement encompassing the definition, dating, and incidence of financial crises. Leading datasets differ markedly in terms of their historical frequency of crises leading to classification uncertainty. There is a range of estimates of output losses from financial crises in the literature, and these are also dependent upon definitions. We find economically significant output losses from various types of crises using a consistent methodology across time and datasets. Predicting crises also remains a challenge. We survey the Early Warnings Indicators literature finding that a broad range of variables are potential predictors. Credit booms have been emphasized recently, but other factors still matter. Finally, we identify a new policy trilemma. Countries can have two of the following three choices: a large financial sector, fiscal bailouts devoted to financial crises, and discretionary fiscal policy aimed at raising demand during the recessions induced by financial crises.

Original languageEnglish (US)
Title of host publicationHandbook of Macroeconomics, 2016
EditorsJohn B. Taylor, Harald Uhlig
PublisherElsevier B.V.
Number of pages58
ISBN (Print)9780444594877
StatePublished - Jan 1 2016

Publication series

NameHandbook of Macroeconomics
ISSN (Print)1574-0048

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)


  • Banking crises
  • Capital flows
  • Credit boom
  • Crisis chronologies
  • Currency crises
  • Early warning indicators
  • Fiscal crises
  • Fiscal resolution
  • Fiscal trilemma
  • Output losses

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  • Cite this

    Bordo, M., & Meissner, C. M. (2016). Fiscal and Financial Crises. In J. B. Taylor, & H. Uhlig (Eds.), Handbook of Macroeconomics, 2016 (pp. 355-412). (Handbook of Macroeconomics; Vol. 2). Elsevier B.V..