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

Oscar Jorda, Moritz Schularick and Alan Taylor

IMF Economic Review, 2011, vol. 59, issue 2, 340-378

Abstract: 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.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (460)

Downloads: (external link)
http://www.palgrave-journals.com/imfer/journal/v59/n2/pdf/imfer20118a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/imfer/journal/v59/n2/full/imfer20118a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfecr:v:59:y:2011:i:2:p:340-378

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().