Financial policymaking after crises : Public vs. private interests

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Title: Financial policymaking after crises : Public vs. private interests
Author: Saka, Orkun ; Ji, Yuemei ; De Grauwe, Paul
Organization: Bank of Finland
Department / Unit: Bank of Finland Institute for Emerging Economies (BOFIT)
Series: BOFIT Discussion Papers
Series number: 10/2021
Year of publication: 2021
Publication date: 6.7.2021
Pages: 108
Subject (yso): finanssikriisit; rahoitusmarkkinat; kriisit; sääntely; uudistukset; eturyhmät; politiikka; poliitikot; poliittiset johtajat; päättäjät; kannustimet; vaalit
Keywords: Bofit-kokoelma; demokratiat; julkiset intressit; yksityiset intressit; vaalikausi; uudelleenvalinta
JEL: G01; G28; P11; P16
Other keywords: financial crises; reform reversals; democracies; term-limits; special-interest groups
Abstract: We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public interest channel, we find post-crisis interventions occur only in democratic countries. However, by using a plausibly exogenous setting -i.e., term limits- muting political 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 may promote (obstruct) private (public) interests.

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