Rapid Credit Growth: Boon or Boom-Bust?

October 1, 2011

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Selim A Elekdag, and Yiqun Wu. Rapid Credit Growth: Boon or Boom-Bust?, (USA: International Monetary Fund, 2011) 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

Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on 99 credit booms. Loose monetary policy stances seem to have contributed to the build-up of credit booms across both advanced and emerging economies. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies.

Subject: Balance of payments, Bank credit, Banking, Capital inflows, Central bank policy rate, Credit, Credit booms, Financial services, Money

Keywords: Asia and Pacific, Bank credit, Boom-bust cycles, Capital inflows, Central bank policy rate, Credit, Credit boom, Credit booms, Credit bust, Credit dynamics During Booms Real Credit, Credit growth, Current account, Emerging Asia, Emerging economy, Financial crises, Fiscal policy, Global, Growth episode, Quite a few boom, Real GDP, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/241
Stock No:

WPIEA2011241
ISBN:

9781463922627
ISSN:

1018-5941

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