Stock market crises and macroeconomic depressions in Spain, 1850-2020
Stock market crises and macroeconomic depressions in Spain, 1850-2020
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Abstract
Stock market crashes have occurred very frequently in Spain. However, in the period 1850-2006, Spain had a lower probability of a depression being associated with a crash than in other countries, even though economic depressions were also common during the period. This result could be explained by the small size and low level of development of the stock market throughout most of this period. However, the probability rises when considering a longer period (1850-2018 and also until 2020), which includes the years of greater financial development and international integration. In this later period, Spain is more similar to other developed countries and stock market crashes seem to be more predictive of the prospect of a depression occurring, especially when the stock market crash is accompanied by a banking crisis. As a result, greater financial instability seems to be the main transmission mechanism between stock market crises and depressions.
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