When Credit Bites Back: Leverage, Business Cycles, and Crises

?The authors gratefully acknowledge financial support through a grant from the Institute for New Economic Thinking (INET) administered by the University of Virginia. Part of this research was undertaken when Schularick was a visitor at the Economics Department, Stern School of Business, New York University. The authors wish to thank, without implicating, David Backus, Philipp Engler, Lola Gadea, Gary Gorton, Robert Kollman, Arvind Krishnamurthy, Michele Lenza, Andrew Levin, Thomas Philippon, Carmen Reinhart, Javier Suarez, Richard Sylla, Paul Wachtel, and Felix Ward for discussion and comments. In the same way, we also wish to thank participants in the following conferences: "Financial Intermediation and Macroeconomics: Directions Since the Crisis," National Bank of Belgium, Brussels, December 9-10, 2011; "Seventh Conference of the International Research Forum on Monetary Policy," European Central Bank, Frankfurt, March 16-17, 2012; the European Summer Symposium in International Macroeconomics (ESSIM) 2012, Banco de Espaa, Tarragona, Spain, May 22-25, 2012; "Debt and Credit, Growth and Crises," Bank of Spain cosponsored with the World Bank, Madrid, June 18-19, 2012; the NBER Summer Institute (MEFM program), Cambridge, Mass., July 13, 2012; "Policy Challenges and Developments in Monetary Economics," Swiss National Bank, Zurich, September 14-15, 2012. In addition, we thank seminar participants at New York University; Rutgers University; University of Bonn; University of Göttingen; University of St. Gallen; Humboldt University, Berlin; Deutsches Institut fürnWirtschaftsforschung (DIW); and University of California, Irvine. The views expressed herein are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System, or the National Bureau of Economic Research. We are particularly grateful to Early Elias for outstanding research assistance.

• October 3, 2012