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Stories of the Twentieth Century for the Twenty-First

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  • Pierre-Olivier Gourinchas
  • Maurice Obstfeld

Abstract

A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century's first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17252.

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Date of creation: Jul 2011
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Publication status: published as Pierre-Olivier Gourinchas & Maurice Obstfeld, 2012. "Stories of the Twentieth Century for the Twenty-First," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 226-65, January.
Handle: RePEc:nbr:nberwo:17252

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