When Credit Bites Back: Leverage, Business Cycles, and Crises / Òscar Jordà, Moritz HP. Schularick, Alan M. Taylor.

Format:

Book

Author/Creator:

Jordà, Òscar.

Contributor:

National Bureau of Economic Research.

Schularick, Moritz HP.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17621.

NBER working paper series no. w17621

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

This paper studies the role of credit in the business cycle, with a focus on private credit overhang. Based on a study of the universe of over 200 recession episodes in 14 advanced countries between 1870 and 2008, we document two key facts of the modern business cycle: financial-crisis recessions are more costly than normal recessions in terms of lost output; and for both types of recession, more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries. In additional to unconditional analysis, we use local projection methods to condition on a broad set of macroeconomic controls and their lags. Then we study how past credit accumulation impacts the behavior of not only output but also other key macroeconomic variables such as investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.

Notes:

Print version record

November 2011.