These are the issues studied by International Monetary Fund (IMF) economists Stijn Claessens, M. Ayhan Kose and March E. Terrones in the December issue of the IMF quarterly Finance and Development.

The authors write: “This is the first detailed, cross-country empirical study addressing the implications of recessions when they coincide with financial market difficulties, including credit crunches, house price busts, and equity price busts."

They study 122 recessions between 1960 and 2007 and find these last on an average four quarters, with the shortest being two quarters and the longest 13 quarters. The typical decline in output from peak to trough is 2%.

But the current recession is not a common one. So the question is, what happened in recessions that had equity and housing busts and were accompanied by a credit crunch?

The authors are unequivocal that these recessions result in output losses that are two to three times greater than recessions without these stresses.

They say severe recessions accompanied by credit crunches and housing busts show a cumulative GDP loss—the total loss between the peak and trough of a recession—of 6% of GDP. Remember, that’s just the median number.

How long will it last? “Credit crunches and housing busts are often long and deep. For example, a credit crunch episode typically lasted two-and-a-half years and was associated with a nearly 20% decline in credit, which is measured by the volume of claims on the private sector. A housing bust tended to last even longer—four-and-a-half years, with a 30% fall in real house prices. An equity price bust lasted more than 10 quarters, and when it was over, the real value of equities had dropped by half."

But then, in the same issue, IMF chief economist Oliver Blanchard says this is the worst crisis in the last 60 years, so studying crises between 1960 and 2007 may not really be the answer.

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