Macrofinancial History and the New Business Cycle Facts

58 Pages Posted: 1 Nov 2016

See all articles by Oscar Jorda

Oscar Jorda

Federal Reserve Banks - Federal Reserve Bank of San Francisco; University of California, Davis - Department of Economics

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 2016

Abstract

In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This "financial hockey stick" coincides with shifts in foundational macroeconomic relationships be- yond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well as tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly. The new stylized facts that we discover should prove fertile ground for the development of a new generation of macroeconomic models with a prominent role for financial factors.

Keywords: credit, financial hockey stick, leverage, Macroeconomics, moments

JEL Classification: E01, E13, E30, E32, E44, E51, F42, F44, G12

Suggested Citation

Jorda, Oscar and Schularick, Moritz and Taylor, Alan M., Macrofinancial History and the New Business Cycle Facts (October 2016). CEPR Discussion Paper No. DP11587, Available at SSRN: https://ssrn.com/abstract=2862204

Oscar Jorda (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
4159742691 (Phone)

HOME PAGE: http://www.frbsf.org/economic-research/economists/oscar-jorda/

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-5549382 (Phone)

HOME PAGE: http://old.econ.ucdavis.edu/faculty/jorda/

Moritz Schularick

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org

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