Predictable Financial Crises

Using historical data on post-war financial crises around the world, we show that combination of rapid credit and asset price growth over prior three years, whether in nonfinancial business or household sector, is associated with a 40% probability entering crisis within next years. This compares roughly 7% normal times, when neither nor elevated. Our evidence challenges view are unpredictable “bolts from sky” supports Kindleberger-Minsky byproduct predictable, boom-bust cycles. predictability favors policies lean against incipient market booms. article protected by copyright. All rights reserved