Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons / Òscar Jordà, Moritz Schularick, Alan M. Taylor.

Format:

Book

Author/Creator:

Jordà, Òscar.

Contributor:

National Bureau of Economic Research.

Schularick, Moritz.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16567.

NBER working paper series no. w16567

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Financial Crises, Credit Booms, and External Imbalances

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

Do external imbalances increase the risk of financial crises? In this paper, we study the experience of 14 developed countries over 140 years (1870-2008). We exploit our long-run dataset in a number of different ways. First, we apply new statistical tools to describe the temporal and spatial patterns of crises and identify five episodes of global financial instability in the past 140 years. Second, we study the macroeconomic dynamics before crises and show that credit growth tends to be elevated and natural interest rates depressed in the run-up to global financial crises. Third, we show that recessions associated with crises lead to deeper recessions and stronger turnarounds in imbalances than during normal recessions. Finally, we ask if external imbalances help predict financial crises. Our overall result is that credit growth emerges as the single best predictor of financial instability, but the correlation between lending booms and current account imbalances has grown much tighter in recent decades.

Notes:

Print version record

December 2010.