Predictable Financial Crises / Robin Greenwood, Samuel G. Hanson, Andrei Shleifer, Jakob Ahm Sørensen.

Format:

Book

Author/Creator:

Greenwood, Robin.

Contributor:

National Bureau of Economic Research.

Hanson, Samuel G.

Shleifer, Andrei.

Sørensen, Jakob Ahm.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27396.

NBER working paper series no. w27396

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of entering a financial crisis within the next three years. This compares with a roughly 7% probability in normal times, when neither credit nor asset price growth has been elevated. Our evidence cuts against the view that financial crises are unpredictable "bolts from the sky" and points toward the Kindleberger-Minsky view that crises are the byproduct of predictable, boom-bust credit cycles. The predictability we document favors macro-financial policies that "lean against the wind" of credit market booms.

Notes:

Print version record

June 2020.