Credit Crises, Money, and Contractions: A Historical View

47 Pages Posted: 24 Apr 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Joseph G. Haubrich

Federal Reserve Bank of Cleveland

Date Written: September 15, 2009

Abstract

The relatively infrequent nature of major credit distress events makes a historical approach particularly useful. Using a combination of historical narrative and econometric techniques, we identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of monetary policy, and document the subsequent effect on output. Using turning points defined by the Harding-Pagan algorithm, we identify and compare the timing, duration, amplitude, and co-movement of cycles in money, credit, and output. Regressions show that financial distress events exacerbate business cycle downturns both in the nineteenth and twentieth centuries and that a confluence of such events makes recessions even worse.

Keywords: credit, monetary policy, business cycles

JEL Classification: E32, E50, G21

Suggested Citation

Bordo, Michael D. and Haubrich, Joseph G., Credit Crises, Money, and Contractions: A Historical View (September 15, 2009). FRB of Cleveland Policy Discussion Paper No. 09-08. Available at SSRN: https://ssrn.com/abstract=1595063

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph G. Haubrich

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2802 (Phone)
216-579-3050 (Fax)

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