Chapter

The Credit Expansion of the Late 1980s and the Recession of the Early 1990s

Christopher Dow

in Major Recessions

Published in print October 2000 | ISBN: 9780199241231
Published online November 2003 | e-ISBN: 9780191596179 | DOI: http://dx.doi.org/10.1093/0199241236.003.0009
 The Credit Expansion of the Late 1980s and the Recession of the Early 1990s

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This chapter covers the period of accelerating growth experienced the UK in the late 1980s, particularly the years 1985–8, which was followed by a protracted decline into deep recession; other industrial countries went through something like the same phases, though with many differences in degree and timing, and these developments were everywhere unexpected––each stage came as a surprise, and forecasts were repeatedly wrong. In hindsight, the recession is widely seen to have resulted from the boom, a view with which this survey agrees. Once more, this recession was very different from its predecessors––each of the two 1970s recessions seemed due in large part to external shocks, but on this latest occasion, it now seems clear that the causes of the recession grew out of previous developments in the domestic economy, which at the time lay undetected. The explanation proposed agrees with the common view that the recession was not due to exogenous shocks of the normal sort, but attributes the boom to over‐optimism rather than (as often argued) to financial deregulation. Section 9.1 sets out this thesis more fully before going on to describe the evidence that bears on it; Sect. 9.2 summarizes the parallel fluctuations in other industrial countries, since they are an important part of the background; Sect. 9.3 then gives an analysis of boom and recession in the UK; Sect. 9.4 considers what the experience of this decade contributes to our understanding of recessions; and Sect. 9.5 discusses the resumption of growth after the recession.

Keywords: boom; credit expansion; deregulation; domestic economy; economic growth; industrial countries; recession; shock; UK

Chapter.  14995 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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