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The Aftermath of Financial Crises. Carmen Reinhart and Kenneth Roggoff. Austria, Hungary 2008 UK, Iceland, Ireland 2007 Malaysia, Thailand Korea, Indonesia, Hong Kong Philippines, 1997 Japan 1992 Finland, Sweden 1991 Colombia, 1998 Norway, 1987 Spain 1977 US 1929 Norway 1899. - PowerPoint PPT Presentation
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The Aftermath of Financial Crises
Carmen Reinhart and Kenneth Roggoff
• Austria, Hungary 2008• UK, Iceland, Ireland 2007• Malaysia, Thailand Korea, Indonesia, Hong Kong
Philippines, 1997• Japan 1992• Finland, Sweden 1991• Colombia, 1998• Norway, 1987• Spain 1977• US 1929• Norway 1899
• Asset market collapses are deep and protracted• Real housing price declines average 35%
stretched over six years• Equity prices collapse an average of 55% over
3.5 years.• Unemployment rate increases an average of 7%
lasting 4 years.• Output falls from peak to trough by 9% over
two years.• Real value of government debt explodes, rising
an average of 86% in post WWII period.
Janu
ary 19
87
Sept
embe
r 198
7
May
1988
Janu
ary 19
89
Sept
embe
r 198
9
May
1990
Janu
ary 19
91
Sept
embe
r 199
1
May
1992
Janu
ary 19
93
Sept
embe
r 199
3
May
1994
Janu
ary 19
95
Sept
embe
r 199
5
May
1996
Janu
ary 19
97
Sept
embe
r 199
7
May
1998
Janu
ary 19
99
Sept
embe
r 199
9
May
2000
Janu
ary 20
01
Sept
embe
r 200
1
May
2002
Janu
ary 20
03
Sept
embe
r 200
3
May
2004
Janu
ary 20
05
Sept
embe
r 200
5
May
2006
Janu
ary 20
07
Sept
embe
r 200
7
May
2008
Janu
ary 20
09
Sept
embe
r 200
9
May
2010
Janu
ary 20
11
Sept
embe
r 201
10.00
50.00
100.00
150.00
200.00
250.00Case Shiller Composite 10 city House price Index
CX
SR
10
Peak July 2006
Back where we were in May 2003
1/4/198410/4/19847/4/19854/4/19861/4/198710/4/19877/4/19884/4/19891/4/199010/4/19907/4/19914/4/19921/4/199310/4/19937/4/19944/4/19951/4/199610/4/19967/4/19974/4/19981/4/199910/4/19997/4/20004/4/20011/4/200210/4/20027/4/20034/4/20041/4/200510/4/20057/4/20064/4/20071/4/200810/4/20087/4/20094/4/20101/4/201110/4/2011
0
5000
10000
15000
20000
25000
30000
35000
40000
45000Nikkei index, adjusted close
1957-01-02
1958-04-02
1959-07-02
1960-10-02
1962-01-02
1963-04-02
1964-07-02
1965-10-02
1967-01-02
1968-04-02
1969-07-02
1970-10-02
1972-01-02
1973-04-02
1974-07-02
1975-10-02
1977-01-02
1978-04-02
1979-07-02
1980-10-02
1982-01-02
1983-04-02
1984-07-02
1985-10-02
1987-01-02
1988-04-02
1989-07-02
1990-10-02
1992-01-02
1993-04-02
1994-07-02
1995-10-02
1997-01-02
1998-04-02
1999-07-02
2000-10-02
2002-01-02
2003-04-02
2004-07-02
2005-10-02
2007-01-02
2008-04-02
2009-07-02
2010-10-02
2012-01-020.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00S&P 500 Stock Index
Lehman Brothers fails 9-15-2008
1 3 5 7 9 11 13 15 17 19 21 23 25
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
Cumulative % Decline in Unemployment In Recessions in Missouri
1/1980 to 7/19087/1981 to 11/19827/1990 to 3/19913/1001 to 11/200112/2007 to ???
Cum
ulati
ve D
eclin
e in
%
Months Duration
• At the national level Okun’s law gives a rough 3 to 1 relation between real GDP growth and changes in unemployment rates.
• Every 3% increase in real GDP lowers the unemployment rate by 1%.
• Current national unemployment rate=9.7% in February 2010
• Full employment unemployment rate=5-6%• Need 9-12% growth in real GDP to get to full
employment.
