Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries

By Marco Arena, Serpil Bouza, Era Dabla-Norris, . Kerstin Gerling, Lamin Njie

January 22, 2015

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Marco Arena, Serpil Bouza, Era Dabla-Norris, . Kerstin Gerling, and Lamin Njie. Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a comprehensive database on bank credit, covering 135 developing countries over the period 1960–2011, we identify, document, and compare the macro-economic dynamics of credit booms across low- and middle-income countries. The results suggest that while the duration and magnitude of credit booms is similar across country groups, macro-economic dynamics differ somewhat in low-income countries. We further find that surges in capital inflows are associated with credit booms. Moreover, credit booms associated with banking crises exhibit distinct macroeconomic dynamics, while also reflecting a potentially large deviation of credit from country fundamentals. These results suggest that low-income countries should remain mindful of the inter-linkages between financial liberalization, increased cross-border banking activities, and rapid credit growth.

Subject: Balance of payments, Banking crises, Capital inflows, Credit, Credit booms, Financial crises, Monetary expansion, Monetary policy, Money

Keywords: Analysis of credit boom, Banking, Banking crises, Boom episode, Boom magnitude, Capital inflows, Characteristics of credit boom, Credit, Credit boom, Credit booms, Credit growth, Credit percapita, Credit-to-GDP, Emerging market economies, End of the credit boom, Global, Growth rate, Low-income countries, Macroeocnomic dynamics, Monetary expansion, Percentage of credit boom, Probability of a credit boom, Probability of credit boom episode, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/011
Stock No:

WPIEA2015011
ISBN:

9781484356869
ISSN:

1018-5941

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