Hello, my name is Amy Handlan. I am an economics major, math
minor at George Mason University. This is my second semester with URSP
researching the relationship between government type and financial instability.
Last semester I found that there is a significant, negative quadratic
relationship between Polity score, an index of government ranging from
autocratic to democratic, and frequency of financial crisis, a measure of
financial instability. I found this relationship in a cross-section of 70
countries from 1970 to 2006. However, cross-section regressions do not account
for variations over time or for country time-invariant traits.
Accordingly, this semester I have been working on building a
panel data set from the annual data and running fixed effect panel regressions.
Once accounting for country characteristics and time, the coefficients became
positive. This implies that there could be a positive relationship between
changes in government and frequency of financial crises. While getting
significant coefficients in my econometrics is exciting, my biggest challenge
this semester has been working with the theories behind my empirical
relationships.
Therefore, this semester I have been focusing on developing
my review of related literature and looking for possible channels of causation.
This week I have started reading
Charles Calomiris and Stephen Haber’s Fragile by Design: The Political Origins of Banking Crises and Scarce
Credit. The focus of their book is that banking systems are infused with
politics because “the property-rights system underpinning banking systems is an
outcome of political deal making” (13). Accordingly, when political structures
are different or change, there will be an effect on the banking system and thus
financial markets. This book is helping me build a foundation for developing
the theoretical channel through which different government types could create
different frequencies of financial crises.
