Tuesday, April 17, 2012

FRBSF — Credit: A Starring Role in the Downturn

Conclusion 
Any forecast that assumes the recovery from the Great Recession will resemble previous post-World War II recoveries runs the risk of overstating future economic growth, lending activity, interest rates, investment, and inflation. The data suggest that, this time around, credit cannot be considered a secondary effect. The interaction between the financial system and the real economy remains a weak spot of modern macroeconomic modeling. A careful analysis of 14 advanced economies over 140 years—data that extend far beyond the narrow post-World War II experience of the United States—reveals that the role of credit is sometimes central to understanding the business cycle.
Read it at Federal Reserve Bank of San Francisco Economic Letter
Credit: A Starring Role in the Downturn
by Òscar Jordà | research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.
(h/t Mark Thoma)

2 comments:

paul meli said...

Isthe message starting to get out?

The major players will be claiming they always knew this starting in 3…2…1…

Leverage said...

There was one lecture on INET about this same study (by one of the co-authors), paper should be available on website I suppose:

Moritz Schularick: Instability in Financial Markets 4/5

http://www.youtube.com/watch?v=mJRb8yponQI&list=PL6380884C0F0C996E&index=15&feature=plpp_video