Reinhart and Rogoff Is the 2007 U S
- Slides: 9
Reinhart and Rogoff “Is the 2007 U. S. Sub-prime Financial Crisis So Different? ” Vaughan / Economics 639 1
Prior to U. S. Subprime Crisis • U. S. showed classic signs of impending financial crisis. – Run-up in housing and equity prices – Large capital inflows – Slow down in real growth – Run-up in public (and private debt) 2
In Run-up to the U. S. Subprime Crisis • Critics argued “this time is different. ” – Increase in housing prices justified by financial innovation and fundamentals. – Increase in equity prices justified by surge in U. S. productivity and fall in risk accompanying “Great Moderation. ” – Etc. etc. 3
Was Crisis Predictable? • Reinhart and Rogoff look at 18 bank-centered financial crisis in advanced industrial countries since World War II. • Big Five Crisis – Spain 1977* – Norway 1987* Answer: Yes! – Finland 1991* – Sweden 1991* – Japan 1992* *beginning year • 13 other less-intense banking and financial crisis 4
Predictors of Financial Crises Boom in Housing Prices 5
Predictors of Financial Crises Boom in Equity Prices 6
Predictors of Financial Crises Surge in Capital Inflows • Note that U. S. current account (capital inflow) was significantly larger. 7
Predictors of Financial Crises Slowing Real Growth 8
Predictors of Financial Crises Rising Public Debt • U. S. public debt grew more slowly but not if private debt is included. 9
