EconPapers    
Economics at your fingertips  
 

How Credit Cycles across a Financial Crisis

Arvind Krishnamurthy and Tyler Muir
Additional contact information
Tyler Muir: University of California, Los Angeles

Research Papers from Stanford University, Graduate School of Business

Abstract: We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities suggests that credit supply expansions are a precursor to crises. The 2008 financial crisis cycle is in keeping with these historical patterns surrounding financial crises.

Date: 2017-08
New Economics Papers: this item is included in nep-ifn and nep-knm
References: Add references at CitEc
Citations: View citations in EconPapers (90)

Downloads: (external link)
https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/441281
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: How Credit Cycles across a Financial Crisis (2017) Downloads
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:ecl:stabus:repec:ecl:stabus:3579

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-05-22
Handle: RePEc:ecl:stabus:repec:ecl:stabus:3579