Good Booms, Bad Booms

66 Pages Posted: 20 Feb 2014 Last revised: 7 Sep 2016

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)

Date Written: September 6, 2016

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 (September 6, 2016). Available at SSRN: https://ssrn.com/abstract=2398401 or http://dx.doi.org/10.2139/ssrn.2398401

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States

HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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