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Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons

IMF economic review, 2011-06, Vol.59 (2), p.340-378 [Peer Reviewed Journal]

2011 International Monetary Fund (IMF) ;International Monetary Fund 2011 ;COPYRIGHT 2011 Palgrave Macmillan Ltd. (Springer) ;ISSN: 2041-4161 ;EISSN: 2041-417X ;EISSN: 1564-5150 ;DOI: 10.1057/imfer.2011.8

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Title:
Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons
Author: JORDÀ, ÒSCAR ; SCHULARICK, MORITZ ; TAYLOR, ALAN M.
Subjects: 20th century ; Analysis ; Business cycles ; C14 ; C52 ; Capital Markets ; Capital mobility ; Charge accounts ; Countries ; Credit ; Datasets ; Developing countries ; E51 ; Economic aspects ; Economic conditions ; Economic crises ; Economic crisis ; Economic growth rate ; Economic history ; Economic models ; Economic Policy ; Economic recessions ; Economic statistics ; Economic theory ; Economics ; Economics and Finance ; Economics, International ; Emerging markets ; F32 ; F42 ; Finance ; Financial risk ; Forecasts and trends ; Global recessions ; Gross domestic product ; Interest rates ; International Economics ; International finance ; International monetary fund ; LDCs ; Loans ; Macroeconomics ; Macroeconomics/Monetary Economics//Financial Economics ; N10 ; N20 ; Recessions ; Regulation of financial institutions ; Studies
Is Part Of: IMF economic review, 2011-06, Vol.59 (2), p.340-378
Description: Do external imbalances increase the risk of financial crises? This paper studies the experience of 14 developed countries over 140 years (1870-2008). It exploits the long-run data set in a number of different ways. First, the paper applies new statistical tools to describe the temporal and spatial patterns of crises and identifies five episodes of global financial instability in the past 140 years. Second, it studies the macroeconomic dynamics before crises and shows that credit growth tends to be elevated and short-term interest rates depressed relative to the "natural rate" in the run-up to global financial crises. Third, the paper shows that recessions associated with crises lead to deeper slumps and stronger turnarounds in imbalances than during normal recessions. Finally, the paper asks to what extent external imbalances help predict financial crises. The overall result is that credit growth emerges as the single best predictor of financial instability. External imbalances have played an additional role, but more so in the pre-WWII era of low financialization than today.
Publisher: London: Palgrave Macmillan
Language: English
Identifier: ISSN: 2041-4161
EISSN: 2041-417X
EISSN: 1564-5150
DOI: 10.1057/imfer.2011.8
Source: AUTh Library subscriptions: ProQuest Central
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Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons

2011 International Monetary Fund (IMF) ;International Monetary Fund 2011 ;COPYRIGHT 2011 Palgrave Macmillan Ltd. (Springer) ;ISSN: 2041-4161 ;EISSN: 2041-417X ;EISSN: 1564-5150 ;DOI: 10.1057/imfer.2011.8

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