NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Good Booms, Bad Booms

Gary Gorton, Guillermo Ordoñez

NBER Working Paper No. 22008
Issued in February 2016
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

Credit booms are not rare and usually precede financial crises. However, some end in a crisis (bad booms) while others do not (good booms). We document that credit booms start with an increase in productivity, which subsequently falls much faster during bad booms. We develop a model in which crises happen when credit markets change to an information regime with careful examination of collateral. As this examination is more valuable when collateral backs projects with low productivity, crises become more likely during booms that display large productivity declines. As productivity decays over a boom as an endogenous result of more economic activity, a crisis may be the result of an exhausted boom and not necessarily of a negative productivity shock. We test the main predictions of the model and identify the component of productivity behind crises.

download in pdf format
   (1279 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22008

Users who downloaded this paper also downloaded* these:
Brunnermeier, Eisenbach, and Sannikov w18102 Macroeconomics with Financial Frictions: A Survey
López-Salido, Stein, and Zakrajšek w21879 Credit-Market Sentiment and the Business Cycle
Reinhart, Reinhart, and Trebesch w21958 Global Cycles: Capital Flows, Commodities, and Sovereign Defaults, 1815-2015
Mendoza and Terrones w14049 An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data
Cooper and Liu w22010 MisMatch in Human Capital Accumulation
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us