Understanding the Relationship between Output Growth Expectations and Financial Crises
Working Paper #287
This paper explores two dimensions of the relationship between outputgrowth expectations and financial crises. The first dimension is the relationship between volatility of output growth expectations and the frequency of financial crises. I describe the conditions that are needed to explain the frequency of crises we observe in highly volatile economies, and I show how models with learning about output growth trends are able to generate those conditions. The second dimension is the relationship between volatility of output growth expectations and the severity of financial crises, measured by output losses. I report that more stability of expectations is associated with more severe debt and banking crises, consistent with the Minsky Financial Instability Hypothesis.
Keywords: Expectations, Volatility, Financial Crises
About the Author
Initiative for Policy Dialogue (IPD)
Martín Guzmán served as Minister of Economy of the Republic of Argentina (December 2019- July 2022).
He is a Research Scholar at the Columbia University School of Business and Director of the Sovereign Debt Restructuring Program of Columbia’s Initiative for Policy Dialogue. He is the executive director of the academic training program supported by the Institute for New Economic Thinking chaired by Professor Joseph Stiglitz at Columbia University Business School. He is a professor of Money, Credit, and Banking at the National University of La Plata. He has served as editor-in-chief of the Journal of Globalization and Development and is a member of the editorial board.
He is a member of the Pontifical Academy of Social Sciences in the Vatican and a member of the Scientific Board of the Trento Summer School in Adaptive Economic Dynamics at the University of Trento, Italy.
He holds a PhD. In Economics from Brown University, United States (2013). Prior to his doctoral studies, he received a Bachelor’s degree in Economics (2005) and a Master’s degree in Economics (2007) from the National University of La Plata, Argentina.