Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89662
Authors: 
Jordà, Òscar
Schularick, Moritz
Taylor, Alan M.
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4431
Abstract: 
Two separate narratives have emerged in the wake of the Global Financial Crisis. One speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper studies the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies financial stability risks have come from private sector credit booms and not from the expansion of public debt. However, we find evidence that high levels of public debt have tended to exacerbate the effects of private sector deleveraging after crises, leading to more prolonged periods of economic depression. Fiscal space appears to be a constraint in the aftermath of a crisis, then and now.
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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