The Aftermath of Financial Crises Carmen Reinhart and Kenneth Roggoff

Austria, Hungary 2008 UK, Iceland, Ireland 2007 Malaysia, Thailand Korea, Indonesia, Hong Kong Philippines, 1997 Japan 1992 Finland, Sweden 1991 Colombia, 1998 Norway, 1987 Spain 1977 US 1929 Norway 1899

Asset market collapses are deep and protracted Real housing price declines average 35% stretched over six years Equity prices collapse an average of 55% over 3.5 years. Unemployment rate increases an average of 7% lasting 4 years. Output falls from peak to trough by 9% over two years. Real value of government debt explodes, rising an average of 86% in post WWII period.

At the national level Okun’s law gives a rough 3 to 1 relation between real GDP growth and changes in unemployment rates. Every 3% increase in real GDP lowers the unemployment rate by 1%. Current national unemployment rate=9.7% in February 2010 Full employment unemployment rate=5-6% Need 9-12% growth in real GDP to get to full employment.