Systemic banking crises database
TL;DR: In this article, the authors present a comprehensive database on systemic banking crises during 1970-2011 and propose a methodology to date banking crises based on policy indices, and examine the robustness of this approach.
Abstract: The paper presents a comprehensive database on systemic banking crises during 1970–2011. It proposes a methodology to date banking crises based on policy indices, and examines the robustness of this approach. The paper also presents information on the costs and policy responses associated with banking crises. The database on banking crises episodes is further complemented with dates for sovereign debt and currency crises during the same period. The paper contrasts output losses across different crises and finds that sovereign debt crises tend to be more costly than banking crises, and these in turn tend to be more costly than currency crises. The data also point to significant differences in policy responses between advanced and emerging economies.
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TL;DR: Using a recent IMF survey and expanding on previous studies, the authors document the use of macro-prudential policies for 119 countries over the 2000-13 period, covering many instruments.
Abstract: Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.
559 citations
TL;DR: The authors used data on 14 advanced countries between 1870 and 2008 to study how past credit accumulation impacts key macroeconomic variables such as output, investment, lending, interest rates, and inflation, finding that more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries.
Abstract: Using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle: relative to typical recessions, financial crisis recessions are costlier, and more credit-intensive expansions tend to be followed by deeper recessions (in financial crises or otherwise) and slower recoveries. We use local projection methods to condition on a broad set of macro-economic controls to study how past credit accumulation impacts key macro-economic variables such as output, investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.
480 citations
TL;DR: Using a recent IMF survey and expanding on previous studies, this article document the use of macro-prudential policies for 119 countries over the 2000-2013 period, covering many instruments.
404 citations
TL;DR: In this article, a panel fixed effects model for a sample of 121 countries covering 1975-2005 was used to examine how financial development, financial liberalization and banking crises are related to income inequality.
280 citations
TL;DR: This paper showed that the share of mortgages on banks' balance sheets doubled in the course of the twentieth century, driven by a sharp rise of mortgage lending to households, and that household debt to asset ratios have risen substantially in many countries.
Abstract: This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the twentieth century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms, which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy.
247 citations
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TL;DR: This Time Is Different as mentioned in this paper presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes.
Abstract: Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
4,595 citations
TL;DR: The authors analyzes the links between banking and currency crises and finds that problems in the banking sector typically precede a currency crisis, activating a vicious spiral; financial liberalization often precedes banking crises.
Abstract: In the wake of the Mexican and Asian currency turmoil, the subject of financial crises has come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. We find that: problems in the banking sector typically precede a currency crisis--the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows and accompanied by an overvalued currency.
4,442 citations
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TL;DR: This paper examined the potential links between banking and balance-of-payments crises and found that financial liberalization usually predates banking crises, indeed, it helps predict them, rather than a causal relationship from banking to balance of payments crises.
Abstract: In the wake of the ERM and Mexican currency crises, the subject of balance-of-payments crises has come to the forefront of academic and policy discussions. This paper focuses on the potential links between banking and balance-of-payments crises. We examine these episodes for a large number of countries and find that knowing that there are banking problems helps in predicting balance-of-payments crises, but the converse is not true; financial liberalization usually predates banking crises, indeed, it helps predict them. Rather than a causal relationship from banking to balance-of-payments crises, the macroeconomic "stylized facts" that characterize these episodes point to common causes.
4,415 citations
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TL;DR: This paper studied the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870-2008, utilizing the data to study rare events associated with financial crisis episodes.
Abstract: The crisis of 2008-09 has focused attention on money and credit fluctuations, financial crises, and policy responses. In this paper we study the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870-2008, utilizing 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, and we also find a decline in safe assets on banks' balance sheets. We also 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 can also show that credit growth is a powerful predictor of financial crises, suggesting that such crises are
2,021 citations
TL;DR: The authors defined a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation, and used a panel of annual data for over 100 developing countries from 1971 through 1992 to characterize currency crashes.
1,827 citations