Scandinavian Working Papers in Economics

Lund Papers in Economic History,
Lund University, Department of Economic History

No 165: The Macroeconomic Effects of Banking Crises: Evidence from the United Kingdom, 1750-1938

Seán Kenny (), Jason Lennard and John D. Turner
Additional contact information
Seán Kenny: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Jason Lennard: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
John D. Turner: Queen's University Belfast

Abstract: This paper investigates the macroeconomic effects of UK banking crises over the period 1750 to 1938. We construct a new annual banking crisis series using bank failure rate data, which suggests that the incidence of banking crises was every 32 years. Using our new series and a narrative approach to identify exogenous banking crises, we find that industrial production contracts by 8.2 per cent in the year following a crisis. This finding is robust to a battery of checks, including different VAR specifications, different thresholds for the crisis indicator, and the use of a capital-weighted bank failure rate.

Keywords: banking crisis; bank failures; narrative approach; macroeconomy; United Kingdom

JEL-codes: E32; E44; G21; N13; N23; N24

44 pages, October 11, 2017

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