What Happens During Recessions, Crunches and Busts?

By Marco Terrones, Ayhan Kose, Stijn Claessens

December 1, 2008

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Marco Terrones, Ayhan Kose, and Stijn Claessens. What Happens During Recessions, Crunches and Busts?, (USA: International Monetary Fund, 2008) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42

Subject: Asset prices, Credit, Housing prices, Oil prices, Stocks

Keywords: Asset price, Credit contraction, Equity price, House price, Price bust, Recession episode, WP

Publication Details

Pages:

75
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/274
Stock No:

WPIEA2008274
ISBN:

9781451871326
ISSN:

1018-5941

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