NBER

Jakob BA. Sørensen

D4.17
Solbjerg Plads 3
Frederiksberg 2000
Denmark

E-Mail: jso.fi@cbs.dk
Institutional Affiliation: Copenhagen Business School

NBER Working Papers and Publications

June 2020Predictable Financial Crises
with Robin Greenwood, Samuel G. Hanson, Andrei Shleifer: w27396
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 ...

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