When Credit Bites Back

Using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle: relative to typical recessions, financial crisis recessions are costlier, and more credit-intensive expansions tend to be followed by deeper recessions (in financial crises or otherwise)...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2013-12, Vol.45 (s2), p.3-28
Main Authors: JORDÀ, ÒSCAR, SCHULARICK, MORITZ, TAYLOR, ALAN M.
Format: Article
Language:English
Subjects:
Bank credit
Bank loans
booms
Business cycles
C14
C52
Capital accumulation
Commercial credit
Credit
Credit systems
E51
Economic crises
Economic fluctuations
Economic recessions
Economic recovery
F32
F42
financial crises
Financial crisis
Gross domestic product
Industrialized nations
Interest rates
leverage
local projections
Macroeconomics
N10
N20
Real gross domestic product per capita
Recession
Recessions
Studies
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Summary:Using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle: relative to typical recessions, financial crisis recessions are costlier, and more credit-intensive expansions tend to be followed by deeper recessions (in financial crises or otherwise) and slower recoveries. We use local projection methods to condition on a broad set of macro-economic controls to study how past credit accumulation impacts key macro-economic variables such as output, 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.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12069