Comment

Abstract

This study, motivated by the financial crisis that began in 2007, is an impressive, comprehensive statistical analysis of the time series of major financial variables: credit, stock prices, and real estate prices. The database includes 21 advanced countries over five decades: 1960:1–2009:4. It yields more than 470 financial cycles. The large database is the big strength of the paper, although the high number of cycles (almost one every other country-year, in a sense) is an early warning that the authors may be working at an excessively high frequency. The topic and the approach are each emblematic of important megathemes. First, the topic of financial cycles. For half a century, we monetary economists have focused overwhelmingly on the inflation/ disinflation cycle. If we said that monetary policy was too easy at some point, we were thinking of the dangers of inflation. If recessions resulted frommonetary tightening, the motive was disinflation. I believe that the result of the global financial crisis will be a paradigm shift in macroeconomics, under which financial cycles will be granted as much importance as the inflation/disinflation cycle. Of course nothing is new under the sun: scribblers of the past gave us bubbles and panics (Kindleberger), the credit cycle (von Hayek), the crash (Minsky), and debt deflation (Irving Fisher), not to mention characterizations of financial markets such as casinos or beauty contests (the Keynes of the General Theory). The second megatheme is the importance of casting the data net wide with respect to time and with respect to countries. Even before the financial crisis, we were learning the importance of big data sets, welcoming the economic historians with their long time series and the econometricians with their panel study techniques. But the crisis has demonstrated the importance of a wide net for all to see. It is the reason for the great success of the recent book by Carmen Reinhart and Ken Rogoff (2009).