Stories of the Twentieth Century for the Twenty-First

Abstract

A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century's first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis. (JEL E44, F34, F44, G01, G21, O19)

Financial Globalisation and the Crisis

“…More generally, credit growth is an important leading indicator of subsequent financial crises, with recent estimates provided by Jorda et al (2011) and Gourinchas and Obstfeld (2012). In related fashion, Lane and Milesi-Ferretti (2012) show that the scale of pre-crisis " excess" current account deficits has been associated with larger current account turnarounds over 2008-2010, which were mostly accomplished through reductions in domestic absorption.…”

Bubbles and Crises: The Role of House Prices and Credit

“…We follow Gourinchas and Obstfeld (2012) and estimate a linear regression model to determine how an economic variable's conditional expectation depends on the temporal distance from a crisis. 21 Let x j,i,t ∈ x i,t represent the variable of interest (e.g.…”

On the solvency of nations: Cross-country evidence on the dynamics of external adjustment

“…The next robustness test explores the implications of splitting the sample into high vs. low leverage countries (leverage is defined as the ratio of total assets relative to equity liabilities, see Gourinchas and Obstfeld (2011), for details). High (low) leverage countries are defined as those with above (below) median leverage level.…”

“…As in the case of the ADF and PP tests, the results of the KPPS test indicate that nf a is integrated of finite order. 17 We performed additional robustness tests using historical data for the United States. The U.S. has a large weight in our analysis because of its large share of global imbalances.…”