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Macrofinancial History and the New Business Cycle Facts
Report

Macrofinancial History and the New Business Cycle Facts

Oscar Jorda, Moritz Schularick and Alan M. Taylor
FRBSF, 2016
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

In this innovative research that relies on new global data, economists Oscar Jorda, Moritz Schularick and Alan M. Taylor document the impacts of the remarkable rise in leverage in advanced nations since the 1970s. That increase in indebtedness has left its marks on these economies through slightly reduced volatility and slower growth, greater risk of extreme events, and closer synchronies between business and financial cycles than before. This groundbreaking analysis confirms that significant increases in leverage might not impair an economy’s ability to manage small-scale downturns but are likely to leave it at greater risk of rarer but far more damaging crashes. getAbstract recommends this scholarly study to officials, economists and historians for its contributions to the study of macroeconomic stability.

Take-Aways

  • Sharply increased leverage in developed economies, beginning in the 1970s, toppled the historical relationship of credit to GDP that had remained stable at between 50% to 60% since 1900.
  • The ratio of private credit to GDP in developed countries rose from 62% in 1980 to 118% by 2010.
  • The aspirations of post–World War II generations to own a home have propelled both high household debt-to-asset ratios and ever-higher house prices.

About the Authors

Oscar Jorda is an economist with the Federal Reserve Bank of San Francisco. Moritz Schularick is an economics professor at the University of Bonn. Alan M. Taylor is an economics and finance professor at the University of California, Davis.

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