Financial policymaking after crises : Public vs. private interests
Saka, Orkun; Ji, Yuemei; De Grauwe, Paul (06.07.2021)
JulkaisusarjaBOFIT Discussion Papers
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-202107051320
We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public interest channel, we find post-crisis interventions occur only in democratic countries. However, by using a plausibly exogenous setting -i.e., term limits- muting political accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that may promote (obstruct) private (public) interests.