New research

No Price Like Home
American Economic Review (2017)
with Katharina Knoll and Thomas Steger

How have house prices evolved in the long-run? This paper presents annual house price indices for 14 advanced economies since 1870. Based on extensive data collection, we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid-20th century, but rose sharply in recent decades. Land prices, not construction costs, hold the key to understanding the trajectory of house prices in the long-run.

Summary on VoxEu
Media coverage: Financial Times; FAZ

Economic Policy (2016),
with Òscar Jordà and Alan Taylor

The share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy.

San Francisco Fed Economic Letter
Summary on VoxEU
Media coverage: Time Magazine; New York Times; Financial Times; The Times; The Economist

Macrofinancial History and
the New Business Cycle Facts
NBER Macroannual (2017),
with Òscar Jordà and Alan Taylor

In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage 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, which we can document thanks to a decade-long international and historical data collection effort.

NBER Working Paper (2017),
with Òscar Jordà, Björn Richter and Alan Taylor

Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks’ balance sheets in 17 countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add little predictive power relative to that of credit growth on the asset side of the balance sheet. However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financial crisis recessions are much quicker with higher bank capital.

Large and State Dependent Effects of Quasi-Random Monetary Experiments
NBER Working Paper (2017),
Òscar Jordà and Alan Taylor

Fixing the exchange rate constrains monetary policy. Along with unfettered cross-border capital flows, the trilemma implies that arbitrage, not the central bank, determines how interest rates fluctuate. The annals of international finance thus provide quasi-natural experiments with which to measure how macroeconomic outcomes respond to policy rates. We find that the effects of monetary policy are much larger than previously estimated,
and that these effects are state-dependent.


Credit Booms Gone Bust 
American Economic Review (2012),
with Alan Taylor

We study the behavior of money, credit, and macroeconomic indicators over the long run based on a new historical dataset for 14 countries over the years 1870-2008. Total credit has increased strongly relative to output and money in the second half of the twentieth century. Credit growth is a powerful predictor of financial crises, suggesting that policymakers ignore credit at their peril. 
Summary on VoxEU

Going to Extremes:
Politics after Financial Crises

European Economic Review (2016)
with Manuel Funke and Christoph Trebesch

In this paper we study the political fall‐out from systemic financial crises over the past 140 years. We construct a new long‐run dataset covering 20 advanced economies and more than 800 general elections. Our key finding is that policy uncertainty rises strongly after financial crises as government majorities shrink and polarization rises. After a crisis, voters seem to be particularly attracted to the political rhetoric of the extreme right. On average, far‐right parties increase their vote share by 30% after a financial crisis. Importantly, we do not observe similar political dynamics in normal recessions or after severe macroeconomic shocks that are not financial in nature.

Summary on Vox