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What Happens During Recessions, Crunches and Busts?

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  • Mr. Ayhan Kose
  • Mr. Stijn Claessens
  • Mr. Marco Terrones

Abstract

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 analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42

Suggested Citation

  • Mr. Ayhan Kose & Mr. Stijn Claessens & Mr. Marco Terrones, 2008. "What Happens During Recessions, Crunches and Busts?," IMF Working Papers 2008/274, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2008/274
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    More about this item

    Keywords

    WP; price bust; equity price; house price; recession episode; asset price; credit contraction;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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