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Credit and Economic Recovery: Demystifying Phoenix Miracles

25 Pages Posted: 24 May 2010  

Michael Biggs

Deutsche Bank, London

Thomas Mayer

Centre for European Policy Studies (CEPS); Deutsche Bank, London

Andreas Pick

Erasmus University Rotterdam (EUR) - Department of Econometrics; De Nederlandsche Bank

Date Written: March 15, 2010

Abstract

This paper offers a solution to the puzzle that economic activity recovers after a financial crisis without a rebound in credit. These credit-less recoveries, known as "Phoenix Miracles", question the importance of credit. We argue that these recoveries appear credit-less because GDP is compared to the stock of credit. We show in a theoretical model that recoveries in GDP coincide with recoveries in the flow of credit and this can occur even as the stock of credit declines. Data from emerging and developed economies confirm this finding.

Keywords: Credit, economic recovery, financial crises

JEL Classification: F30, G01

Suggested Citation

Biggs, Michael and Mayer, Thomas and Pick, Andreas, Credit and Economic Recovery: Demystifying Phoenix Miracles (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=1595980 or http://dx.doi.org/10.2139/ssrn.1595980

Michael Biggs

Deutsche Bank, London ( email )

Winchester House
Great Winchester Street, 1
London EC2N 2DB
United Kingdom

Thomas Mayer

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Deutsche Bank, London ( email )

Winchester House
Great Winchester Street, 1
London EC2N 2DB
United States

Andreas Pick (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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