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A common legacy of banking crises is a large increase in government debt, as fiscal resources are used to shore up the banking system. Do crisis response strategies that commit more fiscal resources lower the economic costs of crises? Based on evidence from a sample of 40 banking crises we find that the answer is negative. In fact, policies that are riskier for the government budget are associated with worse, not better, post-crisis performance. We also show that parliamentary political systems are more prone to adopt bank rescue measures that are costly for the government budget. We take adva

This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only in countrieswith institutions that place checks and balances on political power. We interpret this asevidence of a complementarity between financial sector reforms and political institutions thatprotect property rights. Other country characteristics

This paper reviews the experience with exchange rate‐based stabilization of four Western European countries–Italy, Ireland, Portugal, and Greece–in 1980–1996 and compares it with the experience of high‐inflation developing countries. We find that inflation stabilization was contractionary, in contrast with the expansionary cycle observed in high‐inflation countries, although some real exchange rate appreciation took place. Also, frequent adjustments of the exchange rate peg or even its abandonment did not lead to a resumption of inflation, so stabilization programs were successful in all four countries. (JEL E31, F41)