Spotting Financial Crises Early

Harvard’s R-Zone

Economists have long debated whether financial crises can be foreseen. While this question is not new, a notable study from March 2021 provides clear evidence that crises can often be predicted—typically triggered by rapid credit growth alongside sharp increases in asset prices.

Before we dive into this study, we want to clarify that we’re sharing it not because we anticipate an imminent financial crisis—although such events can occur unexpectedly—but to provide insight and understanding based on rigorous research.

Harvard researchers Robin Greenwood, Samuel Hanson, Andrei Shleifer, and Jakob Sørensen showed that financial crises aren’t just freak accidents—they often build up in plain sight.

According to this study, financial crises can be forecasted by examining past credit growth in businesses and households using relatively simple models. Although the ability to predict crises is modest—where a o…