Is the 2007 US sub-prime financial crisis so different?: An international historical comparison

By Carmen M. Reinhart, Kenneth S. Rogoff. 2008

988 citations recorded by the source corpus.

Is the 2007-2008 U.S. sub-prime mortgage financial crisis truly a new and different phenomena? Our examination of the longer historical record finds stunning qualitative and quantitative parallels to 18 earlier post-war banking crises in industrialized countries. Specifically, the run-up in U.S. equity and housing prices (which, for countries experiencing large capital inflows, stands out as the best leading indicator in the financial crisis literature) closely tracks the average of the earlier crises. Another important parallel is the inverted v-shape curve for output growth the U.S. experienced as its economy slowed in the eve of the crisis. Among other indicators, the run-up in U.S. public debt and is actually somewhat below the average of other episodes, and its pre-crisis inflation level is also lower. On the other hand, the United States current account deficit trajectory is worse than average. A critical question is whether the U.S. crisis will prove similar to the most severe industrialized-country crises, in which case growth may fall significantly below trend for an extended period. Or will it prove like one of the milder episodes, where the recovery is relatively fast? Much will depend on how large the shock to the financial system proves to be and, to a lesser extent, on the efficacy of the subsequent policy response.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/b8447c463da8bb381e77153d1ac49d81b9300c11

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Citations in the corpus

Economic Crises and Inequality (2011, neutral): “Reinhart-Rogoff give the same start date, but describe it as a non-systemic crisis (it is listed in italics), although they comment that “it is just a notch below the „Big Five‟” protracted largescale financial crises that they examine (Reinhart and Rogoff, 2008, page 340).”
Volatility Spillovers Across Petroleum Markets (2015, background): “Further, volatility spillovers are closely associated with market co-movements and this phenomenon becomes quite pronounced during crisis events when, usually, ﬁnancial market volatility sharply increases and spills across markets (Reinhart and Rogoff, 2008).”
Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’ (2009, background): “financial crises in both developed and developing countries. Reinhart and Rogoff 2008”
Inequality, credit and financial crises (2016, background): “…in the last decade, has confirmed that episodes of financial instability are indeed precipitated by excessive levels of debt in some form or another (see, e.g., Borio and White, 2003; Mendoza and Terrones, 2008; Elekdag and Wu, 2011; Reinhart and Rogoff, 2008; Schularick and Taylor, 2012).”
Climate Change and the Global Financial Crisis: A Case of Double Exposure (2010, background): “The current global financial crisis, similar to most large-scale disaster events, reveals underlying conditions that were largely hidden prior to the event, along with conditions that were quite apparent—although to some only in hindsight (see Reinhart and Rogoff 2008 ; Yohe and Leichenko 2010 ).”
Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions (2020, background): “On general principles, crises are unpredictable; however, transmission mechanisms relating to financial turmoil do share certain similarities (Reinhart and Rogoff 2008).”
Subnational Debt of China: The Politics-Finance Nexus (2016, background): “Prior studies, in particular Reinhart and Rogoff (2008), have discussed government incentives to default on particular types of debts to minimize negative consequences on the local economy.”
Disentangling Demand and Supply in Credit Developments: A Survey-Based Analysis for Italy (2011, background): “2 Reinhart and Rogoff (2008, 2009) compare major post–World War II episodes in the developed world and find that the aftermath of banking crises is typically characterized by a sharp fall in output and employment and a dramatic increase in the real value of government debt.”
Financial Crises and Bank Failures: A Review of Prediction Methods (2010, background): “Reinhart and Rogoff [9], who analyzed macro indicators in the United States preceding the financial crisis of 2008 and 18 other post-World War II banking crises in industrial countries, also found striking similarities among all of them.”