Publication Date

April 2016


Karl Boulware


Economics (ECON)


English (United States)


This thesis investigates the conclusions of Ng and Wright (2013), who identify that the three recessions since 1985 have had financial market origins. Ng and Wright base their conclusions on an update of the business cycle facts. They find a pronounced leverage cycle, and during economic recoveries, tight availability of credit and slow jobless growth. My investigation begins by testing Ng and Wright’s claim that the origins of these three recessions are the Savings and Loans crisis, the Internet bubble and most recently, the housing market bubble, are consistent chronologically. Finding inconclusive evidence for their claim in two of the three recessions, I then propose an alternate, redemption channel, focused on the changing nature of the financial system post-1985. I present evidence on the business cycle facts in support of this alternate channel, in addition to Ng and Wright’s story. Finally, using proxies for the cost of credit intermediation in both the banking and shadow banking system, I empirically test whether the three recessions since 1985 have had financial market origins. The results of this analysis reveal that shadow banking proxies are more successful in calling business cycle turning points for the last three recessions than those of the traditional bank. The overall findings of this thesis show that the changed nature of financial intermediation is an important consideration in understanding the origins of recessions, but do not indicate that there is a panacea with which to definitively forecast future financial crises.



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