Private credit and public debt in financial crises

Oscar Jorda, Moritz Schularick and Alan Taylor

FRBSF Economic Letter, 2014

Abstract: Recovery from a recession triggered by a financial crisis is greatly influenced by the government?s fiscal position. A financial crisis puts considerable stress on the government?s budget, sometimes triggering attacks on public debt. Historical analysis shows that a private credit boom raises the odds of a financial crisis. Entering such a crisis with a swollen public debt may limit the government?s ability to respond and can result in a considerably slower recovery.

Date: 2014
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