[via Paul Krugman's blog and other blogs]
http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf
Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An
International
Historical Comparison*
Carmen M. Reinhart
University of Maryland and the NBER
and
Kenneth S. Rogoff
Harvard University and the NBER
The first major financial crisis of the 21st century involves esoteric
instruments,
unaware regulators, and skittish investors. It also follows a well-
trodden path laid down
by centuries of financial folly. Is the “special” problem of sub-
prime mortgages this time
really different?
Our examination of the longer historical record, which is part of a
larger effort on
currency and debt crises, finds stunning qualitative and quantitative
parallels across a
number of standard financial crisis indicators. To name a few, the
run-up in U.S. equity
and housing prices that Graciela L. Kaminsky and Carmen M. Reinhart
(1999) find to be
the best leading indicators of crisis in countries experiencing large
capital inflows closely
tracks the average of the previous eighteen post World War II banking
crises in industrial
countries. So, too, does the inverted v-shape of real growth in the
years prior to the
crisis. Despite widespread concern about the effects on national debt
of the early 2000s
tax cuts, the run-up in U.S. public debt is actually somewhat below
the average of other
crisis episodes. In contrast, the pattern of United States current
account deficits is
markedly worse.
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