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Working Paper
Assessing the Historical Role of Credit: Business Cycles, Financial Crises, and the Legacy of Charles S. Peirce
Jordà, Òscar (2013-07-01)
This paper provides a historical overview on financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves prediction of binary events and therefore fits modern statistical learning, signal processing theory, and classification methods. The discussion also emphasizes the need to supplement statistics and computational techniques with economics. A forecast?s success in this environment hinges on the economic consequences of the actions taken as a result of the forecast, ...
Working Paper Series , Paper 2013-19

Journal Article
Variable capital rules in a risky world
Jordà, Òscar (2011)
The recent financial crisis showed that a financial institution's equity may be sufficient to absorb losses during normal times, but insufficient during periods of systemic distress. In recognition of this risk, the Basel III agreement last year introduced a new element of macroprudential regulation called countercyclical buffers, variable capital requirements that shift based on credit growth. These buffers raise the classic regulatory dilemma of safety versus economic growth, but may provide protection against financial calamity at an acceptable cost.
FRBSF Economic Letter

Working Paper
Macrofinancial History and the New Business Cycle Facts
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2016-10-12)
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. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well ...
Working Paper Series , Paper 2016-23

Working Paper
Betting the House
Taylor, Alan M.; Schularick, Moritz; Jordà, Òscar (2014-12)
Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection ...
Working Paper Series , Paper 2014-28

Journal Article
Wage Growth When Inflation Is High
Jordà, Òscar; Liu, Celeste; Nechio, Fernanda; Rivera-Reyes, Fabián (2022-09-06)
In a tight labor market, workers are able to respond to price increases by bargaining for higher wages. Analyzing conditions since the pandemic shows that, in the recent environment of elevated inflation and low unemployment, wages have become much more sensitive to expected price inflation than in the past. The impact of inflation expectations on wages also appears to have become longer lasting.
FRBSF Economic Letter , Volume 2022 , Issue 25 , Pages 6

Working Paper
Inference for Local Projections
Inoue, Atsushi; Jordà, Òscar; Kuersteiner, Guido M. (2024-08-13)
Inference for impulse responses estimated with local projections presents interesting challenges and opportunities. Analysts typically want to assess the precision of individual estimates, explore the dynamic evolution of the response over particular regions, and generally determine whether the impulse generates a response that is any different from the null of no effect. Each of these goals requires a different approach to inference. In this article, we provide an overview of results that have appeared in the literature in the past 20 years along with some new procedures that we introduce ...
Working Paper Series , Paper 2024-29

Working Paper
Global Financial Cycles and Risk Premiums
Jordà, Òscar; Ward, Felix; Taylor, Alan M.; Schularick, Moritz (2018-06-11)
This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk ...
Working Paper Series , Paper 2018-5

Working Paper
The Pavlovian response of term rates to Fed announcements
Jordà, Òscar; Demiralp, Selva (2001)
The traditional view of the monetary transmission mechanism rests on the premise that the Federal Reserve (Fed) controls the level of the federal funds rate via open market operations and the liquidity effect. By contrast, this paper argues that the Fed also manipulates the federal funds rate via public disclosures of the new level of the federal funds rate target and the "announcement effect." We define the announcement effect as the portion of interest rate movements associated with public statements on interest rate targets that do not require conventional open market operations for ...
Finance and Economics Discussion Series , Paper 2001-10

Working Paper
Asset Prices and Credit with Diagnostic Expectations
Cloyne, James; Jordà, Òscar; Singh, Sanjay R.; Taylor, Alan M. (2025-08-22)
Using long-run cross-country panel data, we document that (i) contemporaneous credit growth strongly predicts contemporaneous equity returns with positive sign, and (ii) lagged credit growth strongly predicts contemporaneous equity returns with negative sign. This correlation reversal is robust to added controls for contemporaneous and lagged consumption growth and these credit factors have greater explanatory power than the consumption factors. We find that a general equilibrium model with financial frictions and rational expectations fails to match the empirically estimated sign on ...
Working Paper Series , Paper 2025-15

Journal Article
Diagnosing recessions
Jordà, Òscar (2010)
The beginnings and ends of recessions are officially dated about 12 months after the fact. A common rule of thumb declares recessions as two quarters of consecutive negative GDP growth, but this is very inaccurate. A better option is to apply medical diagnostic evaluation methods to the business conditions indexes of the Chicago and Philadelphia Federal Reserve Banks, which suggests the recent recession ended sometime between June and August 2009.
FRBSF Economic Letter

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