Was the recession of 1991 a financial crisis?

Amongst policy-oriented economists this matters a lot, because the V shape of the recession and recovery in 1991 means that this was either (2) an important exception to the usual “financial crises recessions are really bad” or (2) it is irrelevant since it was not a financial crisis recession.  My colleague Alex Field today presented a seminar (the paper is here) arguing that the relevant banking “crisis” of the period, the savings and loan debacle, was more of a salacious great story, and much less of a macroeconomic event of consequence.  So the 1991 recession had nothing to do with a financial crisis.

In the course of the seminar, Alex presented some output gap numbers (how much GDP has been “lost” relative to what could have been if there had been no crisis).  For 1991 this number was very small, maybe 15% of one year’s GDP.  For the 2007-ongoing recession, this number is likely to be very large, more like 130% of one year’s GDP, according to Alex, about half of what he calculates (roughly) for the Great Depression (~300% of on year’s GDP!).

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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