Òscar Jordà, Federal Reserve Bank of San Francisco; Moritz Schularick, University of Bonn; and Alan M. Taylor, University of California at Davis and NBER

Macrofinancial History and the New Business Cycle Facts

In the era of modern finance, a century-long near-stable ratio of credit to GDP gave way to increasing financialization and surging leverage in advanced economies in the last forty years. This "financial hockey stick" coincides with shifts in foundational macroeconomic relationships beyond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments. Jordà, Schularick, and Taylor document an extensive set of such moments based on a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility but lower growth, more tail risk, and tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly. The new stylized facts the researchers document should prove fertile ground for the development of a newer generation of macroeconomic models with a prominent role for financial factors.