This piece from Verdad is undated but the NBER paper it links to is from the summer of 2020.
Thanks to a friend for the heads-up
From Verdad Advisers:
Behavioral economists at Harvard say the answer might be "yes"
By: Greg Obenshain & Eldar Safarov
The consensus wisdom among academics and practitioners alike is that crises are inherently unpredictable. But Harvard’s famed behavioral economics group has recently produced a new paper suggesting the consensus wisdom on predicting crises might be wrong—at least on a time horizon of three years or longer. Instead, they argue that rapid expansions of credit can drive asset price booms, which are followed by credit busts.
Building off earlier academic research, the authors combine data from 42 countries between 1950 and 2016 to study financial crises in the context of business and household credit growth as well as equity and home price growth. They define crises as declines in bank equities by greater than 30% or banking panics, which capture events such as the Great Recession (2007) and the Savings and Loan Crisis (1990), but not the bust of the dot-com bubble. In line with the theories of Hyman Minsky and Charles Kindleberger, the authors find that financial crises tend to follow periods that feature both elevated debt and asset price growth. The authors define periods when three-year debt growth has been in the top 20% of historical increases and three-year asset price growth has been in the top third of historical increases as the “Red Zone,” shown in the upper right-hand corner of the figure below.
Figure 1: Financial Crises Follow Periods of Elevated Debt and Asset Price Growth
Source: Greenwood et al. Dots placed based on the highest debt and price growth in the previous three years
....MUCH MORE
Some of our previous visits to Verdad:
