Financial Policymaking after Crises: Public vs. Private Interest

88 Pages Posted: 3 Nov 2020

See all articles by Paul De Grauwe

Paul De Grauwe

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Yuemei Ji

University College London - School of Slavonic and East European Studies

Orkun Saka

City, University of London; London School of Economics; Systemic Risk Centre & STICERD; CESifo Network

Date Written: October 1, 2020

Abstract

What drives actual government policies after financial crises? In this paper, we fi rst present a simple model of post-crisis policymaking driven by both public and private interests. Using the most comprehensive dataset available on de-facto financial liberalization over seven policy domains across 94 countries between 1973 and 2015, we then establish that fi nancial crises can lead to more government intervention and a process of re-regulation in financial markets. Consistent with a demand channel from public (interests) to policymakers, we fi nd that post-crisis interventions are common only in democratic countries. However, by using a plausibly exogenous political setting -i.e., term limits- muting policymakers' 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 promote their private interests. These privately-motivated interventions cannot be associated with immediate crisis response, operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

Suggested Citation

De Grauwe, Paul and De Grauwe, Paul and Ji, Yuemei and Saka, Orkun, Financial Policymaking after Crises: Public vs. Private Interest (October 1, 2020). CEPR Discussion Paper No. DP15413, Available at SSRN: https://ssrn.com/abstract=3723637

Paul De Grauwe (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yuemei Ji

University College London - School of Slavonic and East European Studies ( email )

Malet Street
London WC1E 7HU
United Kingdom

Orkun Saka

City, University of London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

London School of Economics

Houghton Street
London, WC2A 2AE
United Kingdom

Systemic Risk Centre & STICERD

Houghton Street
London, WC2A 2AE
United Kingdom

CESifo Network

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
2
Abstract Views
382
PlumX Metrics