In an important study, schularick and taylor 2012, p. When credit bites back society for economic dynamics. Credit booms, financial crises and macroprudential policy. Taylor august 2015 abstract what risks do asset price bubbles pose for the economy. Public debt increases after crisis, not before as governments step in to stabilize a weak postcrisis economy reinhart and rogo 2009. Money, credit, and crises in the long run as quantitative historians, we want to know whether the structures and dynamics.
This is a revised version of a paper presented at the imf conference on financial crises. Mutual fund flows and fluctuations in credit and business cycles. Monetary policy, financial conditions, and financial stability. Schularick and taylor,2012, house prices knoll, schularick, and steger,2014 and equity prices newly revised in this paper have only recently become available. Schularick and taylors 2012 result that credit outperforms money in predicting nancial crises is fully consistent with the money view of macroeconomic outcomes. We are particularly grateful to felix ward bonn graduate school of economics and niklas flamang.
Let me come back to the surge in private debt in the 20th century. The views in this paper are solely the responsibility of the authors and should. Monetary policy, leverage cycles and financial crises, 18702008 w15512. Monetary policy, leverage cycles and financial crises, 18702008 moritz schularick, alan m. The views expressed herein are solely the responsibility of the authors and should not be interpreted as reflecting. Monetary policy responses to financial crises have also been more aggressive, but the output costs of crises have remained large. Mark p taylor dean and donald danforth jr distinguished professor of finance, washu olin business school verified email at wustl. Abstract this paper studies the role of credit in the business cycle, with a focus on private credit overhang.
Credit booms gone bust american economic association. The ratio of aggregate private credit to income in advanced econ. We show that the effects of financial conditions and monetary policy on u. Schularick and taylor 2012, reinhart, reinhart, and rogoff 2012, among many. Consider papers by stroebel and taylor 2012, or better yet, by hamilton 2019 at hoover monetary policy. Replication of schularick and taylor aer 2012 august 8. The money view versus the credit view federal reserve. We examine the relation among measures of credit expansion, measures of. Mutual fund flows and fluctuations in credit and business. A key part of their analysis is the focus of this comment. We develop a model with land heterogeneity to demonstrate how a. Specifically, i replicate sts results in the narrow sense by reproducing their calculations in the opensource econometrics package gretl.
On this website, we provide convenient nocost open access under a license to the most extensive longrun macrofinancial dataset to date. Taylor federal reserve bank of san francisco and uc davis university of bonn andcepr uc davis, nber, andcepr disclaimer. Jorda, schularick and taylor 20, as well as the interactions between housing and credit markets guerrieri and uhlig 2016. Macrofinancial history and the new business cycle facts. Replication of schularick and taylor aer 2012 this paper replicates the results in schularick and taylor aer v. Finally, as support for the notion that the output contractions re. Credit booms gone bust 1031 eichengreen and mitchener 2003, among others, have studied the credit boom preceding the great depression. This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years.
In the last section of the paper we use the micro data and quantify how rising leverage has. The 2008 nancial crisis has opened up a lively research agenda concerned with the e. Replication of schularick and taylor aer 2012 find, read and cite all the research you need on researchgate. The authors wish to thank, without implicating, tobias adrian, david backus, philipp engler, lola gadea, gary gorton, robert. Schularick and taylor 2012, credit growth on average steadily increases prior to the crisis before declining afterward in the upperright panel. Accordingly, we have calculated a new series of total bank lending to the private sector that replaces the older series from schularick and.
Globalhouseprices,1870 2012 katharina knolly moritz schularickz thomas stegerx abstract how have house prices evolved in the longrun. Jorda, schularick, taylor 2012 when credit bites back larger credit boom ex ante correlates with deeper recessions in each case in addition to the larger credit boom making more painful financial crisis case more likely to occur also depressing for investment and inflation outcomes financial normal 05 0 5 10 012345. We can now speak of a global nancial cycle whose effects are felt widely and more vividly over the past few decades than ever before. Taylor 07 april 2017 this is empirically true both for the entire history of advanced economies from 1870 to 20 and for the postww2 period, and holds both within and between countries. Our analysis reveals that the synchronization of nancial cycles across countries has become increasingly prevalent.
Credit, financial conditions, and monetary policy transmission. Part of this research was undertaken when schularick was a visitor at the economics department, stern school of business, new york university. Leverage, business cycles, and crises oscar jorda federal reserve bank of san francisco and university of california davis. Taylor 2015 betting the house journal of international economics, vol. Comments on the federal reserves current framework for.
Monetary policy, financial conditions, and financial stability tobias adrian and nellie liang federal reserve bank of new york staff. Replication of schularick and taylor aer 2012 working paper pdf available september 2016 with 3 reads. Monetary policy, leverage cycles and financial crises, 18702008. However, while some earlier studies examined the roles of different types of debt and a host of potential correlates of crises, they typically examined the linkages between a composite indicator of. Krishnamurthy and muir, 2015, and various measures of s gertler and lown, 1999, in particular credit spread the excess bond premium ebp recently proposed by gilchrist and zakrajsek 2012. E44,e51,e58,g01,g20,n10,n20 abstract the crisis of the advanced economies in 200809 has focused new attention on money and credit fluctuations, financial crises, and policy responses. Inside the great leveraging institute for new economic. The great leveraging federal reserve bank of chicago.
Furthermore, the buildup of credit on bank balance sheets rather than. In one place it brings together macroeconomic data that previously had been dispersed across a variety of sources. Federal reserve banks federal reserve bank of san francisco, university of bonn department of economics, university of california, davis department of economics and max planck society for the advancement of the sciences. The financial crisis has refocused attention on money and credit fluct.
Schularick and taylor 2012, for example, claim that credit growth is a powerful predictor of. Financial regulations and macroeconomic stability1. Total downloads of all papers by moritz schularick. Leveraged bubbles federal reserve bank of san francisco. The baseline model borrows closely from schularick and taylor 2012 and involves a logistic regression in which the probability of a financial crisis is a function of the natural logarithm of the previous years ratio of real nonfinancial credit credit divided by the cpi to its value four. Taylor and felix ward federal reserve banks federal reserve bank of san francisco, university of bonn department of economics, university of california, davis department of economics and max planck society for the advancement of the sciences max planck institute for economics. Causes, consequences and policy responses, september 14, 2012. Credit growth is a powerful predictor of financial crises, suggesting that policymakers ignore credit at their peril. We rely on these new longrun datasets to address the dilemmatrilemma question. Specifically, i replicate sts results in the narrow sense by reproducing their calculations in the open source econometrics package gretl. The jordaschularicktaylor macrohistory database would not have come into being without the dedication of doctoral students, research assistants, the generosity of many colleagues at universities, central banks, and historical archives.
What macroeconomic conditions lead financial crises. The jorda schularicktaylor macrohistory database is the result of an extensive data collection effort over several years. Schularick and taylor 2012 and krishnamurthy andmuir 2015 argue that growth in leverage in the financial sector combined with negative shocks causes financial criseshence, predicting. Pdf on sep 8, 2016, peter m summers and others published credit booms gone bust. Monetary policy, leverage cycles and financial crises, 18702008, w15512. Monetary policy, leverage cycles, and financial crises, 18702008 by moritz schularick and alan m. This article relates to the existing literature in several ways.
Taylor, 20, the future of international liquidity and the role of china,w18771. Globalhouseprices,18702012 katharina knolly moritz schularickz thomas stegerx abstract. Monetary policy, financial conditions, and financial stability tobias adrian nellie liang staff report no. Jorda, schularick, and taylor 2011, 20, 2016a, 2016b uncovered a key stylized fact of modern macroeconomic history that we may call the financial hockey stick. In particular, the sample includes observations from 1870 to 2011 at annual frequency for 17 advanced. Replication of schularick and taylor aer 2012 forthcoming, journal of applied econometrics.
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