Predictable Financial Crises
Robin Greenwood (Harvard University), et al.
March 2021
Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of entering a financial crisis within the next three years. This compares with a roughly 7% probability in normal times, when neither credit nor asset price growth has been elevated. Our evidence cuts against the view that financial crises are unpredictable “bolts from the sky” and points toward the Kindleberger-Minsky view that crises are the byproduct of predictable, boom-bust credit cycles. The predictability we document favors macro-financial policies that “lean against the wind” of credit market booms.

Continue reading →

* Tensions high at first official US-China meeting
* Russia reacts angrily to Biden’s remark that Putin is ‘a killer’
* Economists raise economic forecasts for US as Americans increase spending
* Fed worries that a booming US economy won’t last
* US bond market yields rise a day after Fed meeting
* Higher 10-year Treasury yield a sign of rising economic confidence, says analyst
* US Leading Economic Index continued rising in February
* Philly Fed Mfg Index jumps to 50-year high in March
* US jobless claims unexpectedly rose last week: