How Policy Actions Affect Short-term Post-crisis Recovery?

This paper investigates which factors determine how countries recover after crises, on a sample of 47 financial, currency and sovereign debt crises in 22 countries from the last thirty years, including the recent Great Recession. Several findings emerge. First, the most important factors which are associated with higher post-crisis growth are expansionary monetary and fiscal policy, exchange rate depreciation and prudent banking regulation. Second, the Great Recession does not seem to differ from the other crises in terms of how the policy actions effect the recovery, and the recovery after it is slower because of the global nature of this crisis. Third, the fiscal multiplier does not seem to be smaller during episodes of high public debt, and public debt does not seem to affect the speed of recovery through channels other than the government spending, which can be considered as an argument in favour of pursuing expansionary fiscal policy during crises even in highly leveraged countries.