Financial crises: A survey
Financial crises have large deleterious effects on economic activity, and as such have been the focus of a large body of research. This study surveys the existing literature on financial crises, exploring how crises are measured, whether they are predictable, and why they are associated with economic contractions. Historical narrative techniques continue to form the backbone for measuring crises, but there have been exciting developments in using quantitative data as well. Crises are predictable with growth in credit and elevated asset prices playing an especially important role; recent research points convincingly to the importance of behavioral biases in explaining such predictability. The negative consequences of a crisis are due to both the crisis itself but also to the imbalances that precede a crisis. Crises do not occur randomly, and, as a result, an understanding of financial crises requires an investigation into the booms that precede them.
The authors thank Tobias Adrian, Matthew Baron, Ben Bernanke, Barry Eichengreen, Nicola Gennaioli, Robin Greenwood, Sam Hanson, Òscar Jordà, Hélène Rey, David Romer, Moritz Schularick, Andrei Shleifer, Emil Verner, and Wei Xiong, and especially our discussants, Maurice Obstfeld and Chenzi Xu, and editors, Gita Gopinath and Kenneth Rogoff, for feedback and suggestions. We thank Tyler Muir for kindly sharing data. Pranav Garg provided excellent research assistance. All errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.