IMF Economic Review

, Volume 59, Issue 2, pp 340–378 | Cite as

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

  • Òscar Jordà
  • Moritz Schularick
  • Alan M Taylor


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

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Copyright information

© International Monetary Fund 2011

Authors and Affiliations

  • Òscar Jordà
  • Moritz Schularick
  • Alan M Taylor

There are no affiliations available

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