We examine how financial crises redistribute risk, employing novel empirical methods and micro data from the largest financial crisis of the 20th century – the Great Depression. Using balance-sheet and systemic risk measures at the bank level, we build an econometric model with incidental...

We show that political booms, measured by the rise in governments' popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging...

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks' balance sheets doubled in the course of the 20th century, driven by a sharp rise of...

Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We...

This paper examines the time-profile of the impact of systemic banking crises on GDP and industrial production using a panel of 24 countries over the inter-war period and compares this to the post-war experience of these countries. We show that banking crises have effects that induce medium-term...

We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously...

In 1998 Rüdiger Dornbusch gave the Munich Lectures in Economics entitled "International Financial Crises". The CES Academic Council awarded him the prize and title "Distinguished CES Fellow" for his outstanding work on the monetary theory of foreign trade.Rüdiger Dornbusch passed away on July...

This paper presents a canonical, econometric model of contagion and investigates the conditions under which contagion can be distinguished from inter-dependence. In a two-country (market) setup it is shown that for a range of fundamentals the solution is not unique, and for sufficiently large...

Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi...

We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public...