Default, Credit Growth, and Asset Prices

By C. A. E. Goodhart, Miguel A. Segoviano, Boris Hofmann

September 1, 2006

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C. A. E. Goodhart, Miguel A. Segoviano, and Boris Hofmann. Default, Credit Growth, and Asset Prices, (USA: International Monetary Fund, 2006) accessed September 19, 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

This paper uses a Merton-type estimate of the probability of default (PoD) for the main banks in a sample of Organization for Economic Cooperation and Development and middle-income countries as a proxy for the fragility of their banking systems. Based on theory and stylized facts, the paper explores a range of financial and real variables that explain such PoDs across time. We find property price fluctuations and bank credit to be important explanatory factors. There is two-way interaction between these variables and a clearer relationship when the variables are entered as a deviation from trend. The lag structure between such developments and PoDs is long and varies widely across countries. The paper assesses the implications of these findings for economic policy.

Subject: Asset prices, Bank credit, Banking, Credit, Economic and financial statistics, Financial statistics, Land prices, Money, Prices

Keywords: Asset gap variable, Asset price, Asset price dynamics, Asset price fluctuation, Asset price gap, Asset price shock, Asset price surge, Asset prices, Assets decrease, Bank credit, Bank lending, Bank PoDs, Credit, Credit risk, East Asia, Equity price, Financial statistics, Financial surveillance, Land prices, Macroeconomic shocks, Price bubble, Price variable, Probability of default, Property boom, Property price, Short interest, Stress testing, Systemic risk, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/223
Stock No:

WPIEA2006223
ISBN:

9781451864830
ISSN:

1018-5941

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