-

2

-

recessions
that coincided

with s
tock market crashes
,

defined

as one or more years of a
decline in real GDP
,

(see WEO April 2002 Chapter III) (column 3); stock market booms
(changes from preceeding to succeding peak)

(column 4);
an
indicator of banking crises
(column 5)
;

and
an indicator of
sever
e

financial distress

(column 6) based on
an

Index of
Financial
Stability developed by Bo
r
d
o
,
Dueker
, and Wheelock (2001, 2002)
.

In general, we see so
me salient patterns. First, ther
e were frequent stock market
crashes in both countries (1
7

in the United Kingdom,
20

in the Un
ited States). Second, more
than half of the crashes in each country were associated with recessions (8 in the United
Kingdom, 1
5

in the United States). Third,
historical narratives
suggest that

only
v
ery few
of
these
could be defined as productivity boom
s

and
busts. Fourth, most of the crashes
cum

recessions involved banking p
anics
, especially in the United States before 1933
,

and
many

involved s
evere

financial distress.

B.
Historical Episodes

United Kingdom

Stock market crashes and recessions can be
traced

ba
ck to the eighteenth century
(
Kindleberger, 1996
)
,

and asset boom
s

and

busts even
earlier
, e.g.
,

the famous Dutch Tulip
mania

of the 17
th

century (G
a
rber, 2000)
,

the John Law Mississippi
Bubble

and the South Sea
Bubble, both in 1720. None of those were new

technology induce
d

manias
,

although the
South Sea and Mississippi Bubbles were
associated with expected

future profits from the
opening

up
of world trade.

The earliest and probably most infamo
us boom
-
bust in the modern era was 1824

25
(See Neal. 1998, an
d Bordo, 1998). It is not clear that it could be called a productivity boom.
It began after the Napoleonic wars and the successful resumption of the gold standard in
1
8
21. The British economy began a period of rapid expansion, characterized by both an
expo
rt boom to the newly inde
pendent states of Latin America
,

and a
t the same time,