diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 6224e37ea5..2baa3d5b72 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -3221,9 +3221,9 @@ module ts {
 
         // TYPE CHECKING
 
-        var subtypeRelation: Map<Ternary> = {};
-        var assignableRelation: Map<Ternary> = {};
-        var identityRelation: Map<Ternary> = {};
+        var subtypeRelation: Map<boolean> = {};
+        var assignableRelation: Map<boolean> = {};
+        var identityRelation: Map<boolean> = {};
 
         function isTypeIdenticalTo(source: Type, target: Type): boolean {
             return checkTypeRelatedTo(source, target, identityRelation, /*errorNode*/ undefined);
@@ -3258,7 +3258,7 @@ module ts {
         function checkTypeRelatedTo(
             source: Type,
             target: Type,
-            relation: Map<Ternary>,
+            relation: Map<boolean>,
             errorNode: Node,
             headMessage?: DiagnosticMessage,
             containingMessageChain?: DiagnosticMessageChain): boolean {
@@ -3266,6 +3266,7 @@ module ts {
             var errorInfo: DiagnosticMessageChain;
             var sourceStack: ObjectType[];
             var targetStack: ObjectType[];
+            var maybeStack: Map<boolean>[];
             var expandingFlags: number;
             var depth = 0;
             var overflow = false;
@@ -3424,12 +3425,12 @@ module ts {
                 var id = source.id + "," + target.id;
                 var related = relation[id];
                 if (related !== undefined) {
-                    return related;
+                    return related ? Ternary.True : Ternary.False;
                 }
                 if (depth > 0) {
                     for (var i = 0; i < depth; i++) {
                         // If source and target are already being compared, consider them related with assumptions
-                        if (source === sourceStack[i] && target === targetStack[i]) {
+                        if (maybeStack[i][id]) {
                             return Ternary.Maybe;
                         }
                     }
@@ -3441,10 +3442,13 @@ module ts {
                 else {
                     sourceStack = [];
                     targetStack = [];
+                    maybeStack = [];
                     expandingFlags = 0;
                 }
                 sourceStack[depth] = source;
                 targetStack[depth] = target;
+                maybeStack[depth] = {};
+                maybeStack[depth][id] = true;
                 depth++;
                 var saveExpandingFlags = expandingFlags;
                 if (!(expandingFlags & 1) && isDeeplyNestedGeneric(source, sourceStack)) expandingFlags |= 1;
@@ -3469,9 +3473,18 @@ module ts {
                 }
                 expandingFlags = saveExpandingFlags;
                 depth--;
-                // Only cache results that are free of assumptions
-                if (result !== Ternary.Maybe) {
-                    relation[id] = result;
+                if (result) {
+                    var sourceCache = maybeStack[depth];
+                    // If result is definitely true, copy assumptions to global cache, else copy to next level up
+                    var targetCache = result === Ternary.True || depth === 0 ? relation : maybeStack[depth - 1];
+                    for (var p in sourceCache) {
+                        targetCache[p] = sourceCache[p];
+                    }
+                }
+                else {
+                    // A false result goes straight into global cache (when something is false under assumptions it
+                    // will also be false without assumptions)
+                    relation[id] = false;
                 }
                 return result;
             }
@@ -5399,7 +5412,7 @@ module ts {
             return typeArgumentsAreAssignable;
         }
 
-        function checkApplicableSignature(node: CallLikeExpression, args: Node[], signature: Signature, relation: Map<Ternary>, excludeArgument: boolean[], reportErrors: boolean) {
+        function checkApplicableSignature(node: CallLikeExpression, args: Node[], signature: Signature, relation: Map<boolean>, excludeArgument: boolean[], reportErrors: boolean) {
             for (var i = 0; i < args.length; i++) {
                 var arg = args[i];
                 var argType: Type;
@@ -5593,7 +5606,7 @@ module ts {
 
             return resolveErrorCall(node);
 
-            function chooseOverload(candidates: Signature[], relation: Map<Ternary>) {
+            function chooseOverload(candidates: Signature[], relation: Map<boolean>) {
                 for (var i = 0; i < candidates.length; i++) {
                     if (!hasCorrectArity(node, args, candidates[i])) {
                         continue;
diff --git a/tests/cases/compiler/recursiveTypeComparison.ts b/tests/cases/compiler/recursiveTypeComparison.ts
new file mode 100644
index 0000000000..6ba96cb3aa
--- /dev/null
+++ b/tests/cases/compiler/recursiveTypeComparison.ts
@@ -0,0 +1,14 @@
+// Before fix this would take an exceeding long time to complete (#1170)
+
+interface Observable<T> {
+    // This member can't be of type T, Property<T>, or Observable<anything but T>
+    needThisOne: Observable<T>;
+    // Add more to make it slower
+    expo1: Property<T[]>; //  0.31 seconds in check
+    expo2: Property<T[]>; //  3.11 seconds
+    expo3: Property<T[]>; // 82.28 seconds
+}
+interface Property<T> extends Observable<T> { }
+
+var p: Observable<{}>;
+var stuck: Property<number> = p;
diff --git a/tests/cases/compiler/recursiveTypeComparison2.ts b/tests/cases/compiler/recursiveTypeComparison2.ts
new file mode 100644
index 0000000000..6a781437ab
--- /dev/null
+++ b/tests/cases/compiler/recursiveTypeComparison2.ts
@@ -0,0 +1,30 @@
+// Before fix this would cause compiler to hang (#1170)
+
+declare module Bacon {
+    interface Event<T> {
+    }
+    interface Error<T> extends Event<T> {
+    }
+    interface Observable<T> {
+        zip<U, V>(other: EventStream<U>, f: (a: T, b: U) => V): EventStream<V>;
+        slidingWindow(max: number, min?: number): Property<T[]>;
+        log(): Observable<T>;
+        combine<U, V>(other: Observable<U>, f: (a: T, b: U) => V): Property<V>;
+        withStateMachine<U, V>(initState: U, f: (state: U, event: Event<T>) => StateValue<U, V>): EventStream<V>;
+        decode(mapping: Object): Property<any>;
+        awaiting<U>(other: Observable<U>): Property<boolean>;
+        endOnError(f?: (value: T) => boolean): Observable<T>;
+        withHandler(f: (event: Event<T>) => any): Observable<T>;
+        name(name: string): Observable<T>;
+        withDescription(...args: any[]): Observable<T>;
+    }
+    interface Property<T> extends Observable<T> {
+    }
+    interface EventStream<T> extends Observable<T> {
+    }
+    interface Bus<T> extends EventStream<T> {
+    }
+    var Bus: new <T>() => Bus<T>;
+}
+
+var stuck: Bacon.Bus<number> = new Bacon.Bus();
\ No newline at end of file