Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79671
Authors: 
Jord…, O`scar
Schularick, Moritz
Taylor, Alan
Year of Publication: 
2012
Series/Report no.: 
Working Papers, University of California, Department of Economics 12-24
Abstract: 
This paper studies the role of credit in the business cycle, with a focus on private credit overhang. Based on a study of the universe of over 200 recession episodes in 14 advanced countries between 1870 and 2008, we document two key facts of the modern business cycle: financial-crisis recessions are more costly than normal recessions in terms of lost output; and for both types of recession, more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries. In additional to unconditional analysis, we use local projection methods to condition on a broad set of macroeconomic controls and their lags. Then we study how past credit accumulation impacts the behavior of not only output but also other key macroeconomic variables such as investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.
Subjects: 
leverage
booms
recessions
financial crises
business cycles
local projections
JEL: 
C14
C52
E51
F32
F42
N10
N20
Document Type: 
Working Paper

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