TY  - JOUR
AU  - Schularick,Moritz
AU  - Taylor,Alan M.
TI  - Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15512
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15512
L1  - http://www.nber.org/papers/w15512.pdf
N1  - Author contact info:
Moritz HP. Schularick
John-F.-Kennedy-Institute,
Free University of Berlin,
Berlin,
Germany
E-Mail: moritz.schularick@fu-berlin.de

Alan M. Taylor
Department of Economics
University of Virginia
Monroe Hall
Charlottesville, VA 22903
Fax: (434) 982-2904
E-Mail: alan.m.taylor@virginia.edu
M2  - featured in NBER digest on 2010-03-01
AB  - 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. 
ER  -