Financial crises and the politics of adjustment and reform

Abstract

This chapter is a critical survey of the literature on international financial crises and their consequences for national politics, with a focus on national-level policy choices and political outcomes. After distinguishing conceptually among adjustment, reform, and political change as three broad families of political consequences to financial crises, it reviews three broad analytical approaches to the study of post-crisis political outcomes. Interest-based approaches center on the specific economic consequences of different kinds of financial crises, and look to policy outcomes as a consequence of the interaction between distributional pressures and national political-economic profiles. Institutional approaches address the ways in which institutions mediate the articulation of interest group pressures. Ideational approaches emphasize the constitutive power of ideas in making sense of financial crises. The concluding section identifies several promising areas for future research, highlighting in particular the importance of international context for conditioning the effects of international financial crises on domestic politics. It also highlights some general methodological problems with studying the highly complex economic and political consequences of financial crises.

A Global Analysis of Financial Crises and the Growth of Informal Economic Activity

“…To further unpack these linkages, we examine both immediate and longerterm effects of crises on the informal sector growth, as well as whether these effects vary across different types of financial crises, namely banking, currency, and sovereign debt crises. While crises are similar in that they impose drastic shocks to an economic system, the different types of crises raise somewhat different economic and political implications (Pepinsky, 2014). We find that crises have both short and longer-term impacts on the growth of the shadow sector.…”

“…In particular, the impact of currency crises may be more ephemeral than that of debt and banking crises. Though certainly damaging, the sudden decrease in currency values also has a stimulative effect, particularly in sectors that benefit from undervalued currencies (Pepinsky, 2014; see also Colombo, Onnis, and Tirelli, 2016). By contrast, banking and debt crises "are associated with profound declines in output and employment" (Reinhart and Rogoff, 2009:466), as they are disruptive to capital formation and credit availability (Abdel-Latif, Ouattara, and Murphy, 2017).…”

Information and Financial Crisis Policymaking

“…Our article makes an important contribution to the growing literature on the political economy of public responses to banking crises (see Alesina and Drazen, 1991;Grossman and Woll, 2014;Keefer, 2007;Pepinsky, 2014;Rodrik, 1999;Rosas, 2006Rosas, , 2009Weber and Schmitz, 2011;Woll, 2014). We use a signalling game framework to understand how information asymmetries between political decisionmakers and bureaucrats shape initial crisis responses.…”