When do credit-asset price booms predict crises? The missing role of investment surges

초록

Credit-asset price booms are widely viewed as crisis predictors, but whether this depends on real-sector activity remains unclear. Using data for 42 countries from 1950 to 2016, we augment a measure of joint debt and asset-price surges (the Red-zone) with an Investment-zone based on rapid investment growth. About half of the Red-zone episodes fall into the Investment-zone, and neither zone alone predicts crises. When both overlap, however, the one-year-ahead crisis probability jumps from 4% to 17.8%. Real-sector overheating is thus essential for turning financial booms into crises.

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