Journal ArticleDOI
Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons
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In this article, the authors apply new statistical tools to describe the temporal and spatial patterns of crises and identify episodes of global financial instability in the past 140 years, and show that credit growth tends to be elevated and natural interest rates depressed in the run-up to global financial crises.Abstract:
Do external imbalances increase the risk of nancial crises? In this paper, we study the experience of 14 developed countries over 140 years (1870{2008). We exploit our long-run dataset in a number of dierent ways. First, we apply new statistical tools to describe the temporal and spatial patterns of crises and identify ve episodes of global nancial instability in the past 140 years. Second, we study the macroeconomic dynamics before crises and show that credit growth tends to be elevated and natural interest rates depressed in the run-up to global nancial crises. Third, we show that recessions associated with crises lead to deeper slumps and stronger turnarounds in imbalances than during normal recessions. Finally, we ask to what extent external imbalances help predict nancial crises. Our overall result is that credit growth emerges as the single best predictor of nancial instability. External imbalances have played an additional role, but more so in the pre-WWII era of low nancialization than today.read more
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Rare Disasters, Asset Prices, and Welfare Costs
TL;DR: A representative consumer model with Epstein-Zin-Weil preferences and i.i.d. shocks, including rare disasters, accords with observed equity premia and risk-free rates if the coefficient of relative risk aversion equals 3-4 as discussed by the authors.
Journal ArticleDOI
When Credit Bites Back
TL;DR: The authors used data on 14 advanced countries between 1870 and 2008 to study how past credit accumulation impacts key macroeconomic variables such as output, investment, lending, interest rates, and inflation, finding that more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries.
Journal ArticleDOI
Curbing the Credit Cycle
TL;DR: In this article, a macro-prudential policy could curb these credit cycles, both through raising the cost of maintaining risky portfolios and through an expectations channel that operates via banks' perceptions of other banks' actions.
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Policies for Macrofinancial Stability: How to Deal with Credit Booms
TL;DR: This article found that credit booms are often associated with financial reform and economic growth, and that booms that are followed by a crisis or below- trend growth tend to be larger and last longer.
Journal ArticleDOI
Financial flows, financial crises, and global imbalances
TL;DR: In this paper, the authors document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries' external adjustment processes and for global financial stability, and argue that global current account imbalances remain an essential target for policy scrutiny, for financial as well as macroeconomic reasons.
References
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Collective dynamics of small-world networks
TL;DR: Simple models of networks that can be tuned through this middle ground: regular networks ‘rewired’ to introduce increasing amounts of disorder are explored, finding that these systems can be highly clustered, like regular lattices, yet have small characteristic path lengths, like random graphs.
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Signal detection theory and psychophysics
David M. Green,John A. Swets +1 more
TL;DR: This book discusses statistical decision theory and sensory processes in signal detection theory and psychophysics and describes how these processes affect decision-making.
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Practical Nonparametric Statistics
TL;DR: Probability Theory. Statistical Inference. Contingency Tables. Appendix Tables. Answers to Odd-Numbered Exercises and Answers to Answers to Answer Questions as discussed by the authors.
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Comparing Predictive Accuracy
TL;DR: In this article, explicit tests of the null hypothesis of no difference in the accuracy of two competing forecasts are proposed and evaluated, and asymptotic and exact finite-sample tests are proposed, evaluated and illustrated.
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