72 Pages Posted: 12 Aug 2011
Date Written: August 2011
A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first centurys first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis.
Keywords: banking crisis, Credit boom, currency crisis, emerging markets, leverage, sovereign default
JEL Classification: E44, F32, F34, G15, G21, N10
Suggested Citation: Suggested Citation
Gourinchas, Pierre-Olivier and Obstfeld, Maurice, Stories of the Twentieth Century for the Twenty-First (August 2011). CEPR Discussion Paper No. DP8518. Available at SSRN: https://ssrn.com/abstract=1908566
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