TY  - JOUR
AU  - Krishnamurthy, Arvind
AU  - Muir, Tyler
TI  - How Credit Cycles across a Financial Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23850
PY  - 2017
Y2  - September 2017
DO  - 10.3386/w23850
UR  - http://www.nber.org/papers/w23850
L1  - http://www.nber.org/papers/w23850.pdf
N1  - Author contact info:
Arvind Krishnamurthy
Stanford Graduate School of Business
Stanford University
655 Knight Way
Stanford, CA 94305
E-Mail: akris@stanford.edu

Tyler Muir
University of California at Los Angeles
Anderson School of Management
110 Westwood Plaza
Los Angeles, CA 90024
Tel: 949.632.4190
E-Mail: tyler.muir@anderson.ucla.edu
AB  - We study the behavior of credit and output across a financial crisis cycle using in- formation from credit spreads and credit growth. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities suggests that credit supply expansions are a precursor to crises. The 2008 financial crisis cycle is in keeping with these historical patterns surrounding financial crises.
ER  -