What happens during recessions, crunches and busts?

• Published in: Economic policy Vol. 24; no. 60; pp. 653 - 700
• Main Authors: Claessens, Stijn, Kose, M. Ayhan, Terrones, Marco E.
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-10-2009; Blackwell Publishing; Oxford University Press
• Subjects: Credit; Economic busts; Economic crises; Economic crisis; Economic fluctuations; Economic policy; Economic recessions; Equity; Global recessions; Growth recessions; Housing; Housing prices; Macroeconomics; Recessions; Studies
• ISSN: 0266-4658; 1468-0327
• DOI: 10.1111/j.1468-0327.2009.00231.x

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 analyse the implications of 122 recessions, 113 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 245 (61) episodes of equity price declines (busts), and their various overlaps in these countries, over the sample period. Our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions.