The International Monetary Fund (IMF) has studied crisis features in several countries. In a recent working paper that analyze different types of crisis (recessions, credit contraction episodes, episodes of price declines and equity price declines) they find that:
1) The typical recession lasts almost 4 quarters and is associated with an output drop of roughly 2 percent.
2) Episodes of credit crunches, house price and equity price busts last much longer than recessions do. For example, a credit crunch episode typically lasts two-and-a-half years and is associated with nearly a 20 percent decline in credit. A housing bust tends to persist even longer (four-and-a-half years with a 30 percent fall in real house prices). And an equity price bust lasts some 10 quarters and when it is over, the real value of equities drops by half.
3) In one out of six recessions, there is also a credit crunch underway, and in one out of four recessions a house price bust.
4) Recessions associated with credit crunches and house price busts are deeper and last longer than other recessions do.
As the current economic crisis is associated with a credit contraction and house price decline, it is expected to be one the most severe crisis. (See diagram below for a graphic summary of IMF findings)
1) The typical recession lasts almost 4 quarters and is associated with an output drop of roughly 2 percent.
2) Episodes of credit crunches, house price and equity price busts last much longer than recessions do. For example, a credit crunch episode typically lasts two-and-a-half years and is associated with nearly a 20 percent decline in credit. A housing bust tends to persist even longer (four-and-a-half years with a 30 percent fall in real house prices). And an equity price bust lasts some 10 quarters and when it is over, the real value of equities drops by half.
3) In one out of six recessions, there is also a credit crunch underway, and in one out of four recessions a house price bust.
4) Recessions associated with credit crunches and house price busts are deeper and last longer than other recessions do.
As the current economic crisis is associated with a credit contraction and house price decline, it is expected to be one the most severe crisis. (See diagram below for a graphic summary of IMF findings)
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