Credit Crises, Money, and Contractions: A Historical View
47 Pages Posted: 24 Apr 2010
Date Written: September 15, 2009
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: Suggested Citation