DP11587 Macrofinancial History and the New Business Cycle Facts

Author(s): Ďscar JordÓ, Moritz Schularick, Alan M. Taylor
Publication Date: October 2016
Keyword(s): credit, financial hockey stick, leverage, Macroeconomics, moments
JEL(s): E01, E13, E30, E32, E44, E51, F42, F44, G12
Programme Areas: Financial Economics, Economic History, International Macroeconomics and Finance, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11587

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"Ł 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 finan- cial 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.