IMF Economic Review

, Volume 59, Issue 2, pp 340–378

Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons

  • Òscar Jordà
  • Moritz Schularick
  • Alan M Taylor

DOI: 10.1057/imfer.2011.8

Cite this article as:
Jordà, Ò., Schularick, M. & Taylor, A. IMF Econ Rev (2011) 59: 340. doi:10.1057/imfer.2011.8


Do external imbalances increase the risk of financial crises? This paper studies the experience of 14 developed countries over 140 years (1870–2008). It exploits the long-run data set in a number of different ways. First, the paper applies new statistical tools to describe the temporal and spatial patterns of crises and identifies five episodes of global financial instability in the past 140 years. Second, it studies the macroeconomic dynamics before crises and shows that credit growth tends to be elevated and short-term interest rates depressed relative to the “natural rate” in the run-up to global financial crises. Third, the paper shows that recessions associated with crises lead to deeper slumps and stronger turnarounds in imbalances than during normal recessions. Finally, the paper asks to what extent external imbalances help predict financial crises. The overall result is that credit growth emerges as the single best predictor of financial instability. External imbalances have played an additional role, but more so in the pre-WWII era of low financialization than today.

JEL Classifications

C14 C52 E51 F32 F42 N10 N20 

Supplementary material

41308_2011_Article_BFimfer20118_MOESM2_ESM.pdf (300 kb)
Supplementary Figure 2a
41308_2011_Article_BFimfer20118_MOESM3_ESM.pdf (201 kb)
Supplementary Figure 2b
41308_2011_Article_BFimfer20118_MOESM4_ESM.pdf (16 kb)
Supplementary Figure 3a
41308_2011_Article_BFimfer20118_MOESM5_ESM.pdf (15 kb)
Supplementary Figure 3b
41308_2011_Article_BFimfer20118_MOESM6_ESM.pdf (15 kb)
Supplementary Figure 4a
41308_2011_Article_BFimfer20118_MOESM7_ESM.pdf (15 kb)
Supplementary Figure 4b
41308_2011_Article_BFimfer20118_MOESM8_ESM.pdf (16 kb)
Supplementary Figure 5a
41308_2011_Article_BFimfer20118_MOESM9_ESM.pdf (16 kb)
Supplementary Figure 5b
41308_2011_Article_BFimfer20118_MOESM15_ESM.pdf (111 kb)
Supplementary Figure 10
41308_2011_Article_BFimfer20118_MOESM16_ESM.pdf (111 kb)
Supplementary Figure 11

Copyright information

© International Monetary Fund 2011

Authors and Affiliations

  • Òscar Jordà
  • Moritz Schularick
  • Alan M Taylor

There are no affiliations available

Personalised recommendations