Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008

Moritz Schularick, Alan M. Taylor

NBER Working Paper No. 15512
Issued in November 2009
NBER Program(s):   DAE   EFG   IFM   ME

The crisis of the advanced economies in 2008-09 has focused new attention on money and credit fluctuations, financial crises, and policy responses. We study the behavior of money, credit, and macroeconomic indicators over the long run based on a new historical dataset for 14 countries over the years 1870-2008, using the data to study rare events associated with financial crisis episodes. We present new evidence that leverage in the financial sector has increased strongly in the second half of the twentieth century as shown by a decoupling of money and credit aggregates. We show for the first time how monetary policy responses to financial crises have been more aggressive post-1945, but how despite these policies the output costs of crises have remained large. Importantly, we demonstrate that credit growth is a powerful predictor of financial crises, suggesting that such crises are "credit booms gone wrong" and that policymakers ignore credit at their peril. It is only with the long-run comparative data assembled for this paper that these patterns can be seen clearly.

download in pdf format
   (461 K)

email paper

A non-technical summary of this paper is available in the March 2010 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (461 K) or via email.

This paper was revised on December 5, 2011

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15512

Published: Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-61, April. citation courtesy of

Users who downloaded this paper also downloaded these:
Reinhart and Rogoff w14656 The Aftermath of Financial Crises
Feenstra and Weinstein w15749 Globalization, Markups and U.S. Welfare
Levine w15956 An Autopsy of the U.S. Financial System
Reinhart w15815 This Time is Different Chartbook: Country Histories on Debt, Default, and Financial Crises
Frankel and Saravelos w16047 Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us