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American Economic Review: Vol. 102 No. 2 (April 2012)

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Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008

Article Citation

Schularick, Moritz, and Alan M. Taylor. 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008." American Economic Review, 102(2): 1029-61.

DOI: 10.1257/aer.102.2.1029

Abstract

The financial crisis has refocused attention on money and credit fluctuations, financial crises, and policy responses. We study the behavior of money, credit, and macroeconomic indicators over the long run based on a new historical dataset for 14 countries over the years 1870-2008. Total credit has increased strongly relative to output and money in the second half of the twentieth century. Monetary policy responses to financial crises have also been more aggressive, but the output costs of crises have remained large. Credit growth is a powerful predictor of financial crises, suggesting that policymakers ignore credit at their peril. (JEL E32, E44, E52, G01, N10, N20)

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Authors

Schularick, Moritz (John F. Kennedy Institute, Free U Berlin)
Taylor, Alan M. (U VA)

JEL Classifications

E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
G01: Financial Crises
N10: Economic History: Macroeconomics and Monetary Economics; Growth and Fluctuations: General, International, or Comparative
N20: Economic History: Financial Markets and Institutions: General, International, or Comparative


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