Good Booms, Bad Booms

64 Pages Posted: 20 Feb 2014 Last revised: 18 Sep 2020

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

Credit Booms are not rare; some end in a crisis (bad booms) while others do not (good booms). We document that credit booms start with an increase in productivity growth, which subsequently falls faster during bad booms. We develop a model in which crises happen when credit booms change to an information regime with careful examination of collateral. As this examination is more valuable when collateral backs projects with low productivity, crises are more likely during booms that display productivity declines. We test the main predictions of the model and identify a component of productivity that is behind crises.

Keywords: Financial Crises, Credit Booms, Productivity

JEL Classification: E3, E5

Suggested Citation

Gorton, Gary B. and Ordoñez, Guillermo, Good Booms, Bad Booms (May 1, 2018). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=2398401 or http://dx.doi.org/10.2139/ssrn.2398401

Gary B. Gorton (Contact Author)

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National Bureau of Economic Research (NBER)

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Yale University - Yale Program on Financial Stability

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Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

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