Measuring the Impact of Financial Bailouts: An Interrupted Time Series Approach

Abstract

Over the last three decades, a number of empirical studies have been undertaken to assess whether financial bailouts have led to an improved balance of payments and current account balances, lower inflation, stable currency, higher growth e.t.c. These studies have employed a variety of methodologies and covered different samples. The results are however conflicting. This paper provides a different outlook by using a different methodology - interrupted time series approach - to assess the impact of financial bailouts on some of the aforementioned macroeconomic variables. This methodology is superior in its ability to determine the time it takes for a variable to react to a policy change like a bailout package disbursement. The empirical results indicate that bailout packages have a positive economic effect on major macroeconomic variables in the long-run even though the short-run impacts are conflicting.