How Credit Cycles across a Financial Crisis

No 23850, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the behavior of credit and output across a financial crisis cycle using information from credit spreads and credit growth. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities suggests that credit supply expansions are a precursor to crises. The 2008 financial crisis cycle is in keeping with these historical patterns surrounding financial crises.

JEL-codes: E0 G01 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-ifn and nep-mac
Note: AP CF EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (91)

Downloads: (external link)
http://www.nber.org/papers/w23850.pdf (application/pdf)

Related works:
Working Paper: How Credit Cycles across a Financial Crisis (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23850

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23850

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().