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The Real Effects of the Financial Crisis
Report

The Real Effects of the Financial Crisis

Ben Bernanke
Brookings Institution, 2018
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Editorial Rating

7

Qualities

  • Analytical
  • For Experts
  • Insider's Take

Recommendation

The 2008 financial crisis and the Great Recession that followed laid bare the inadequacy of macroeconomic models to forecast economic dislocations and their cascading effects on households, businesses and financial institutions. Since then, a growing body of research has studied more fully the interrelationship between financial crises and the state of the general economy. In this rigorous study for academics and financial professionals, former Federal Reserve chair Ben Bernanke explains why quantitative models should incorporate several important credit market metrics.

Take-Aways

  • Global economic dislocations in 2008 served as a call to action for macroeconomists who had failed to predict the magnitude of the financial crisis and its subsequent deep recession. 
  • Better tools that include credit factors are critical to understanding how financial market perturbations affect outputs such as GDP growth, jobs, investment and consumption. 
  • The "external finance premium" (EFP), or “the cost of new credit,” is a significant indicator of how credit market disruptions arise and transmit their effects to the broader economy. 

About the Author

Ben Bernanke is a distinguished fellow at the Brookings Institution and a senior adviser to investment firms Citadel and PIMCO.

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