Lending Standards and Output Growth
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Summary:
While some credit booms are followed by economic underperformance, many are not. Can lending standards help separate good credit booms from bad credit booms contemporaneously? To observe lending standards internationally, I use information from primary debt capital markets. I construct the high-yield (HY) share of bond issuance for a panel of 38 countries. The HY share is procyclical, suggesting that lending standards in bond markets are extrapolative. Credit booms with deteriorating lending standards (rising HY share) are followed by lower GDP growth in the subsequent three to four years. Such booms deserve attention from policy makers.
Series:
Working Paper No. 2018/023
Subject:
Bank credit Consumer credit Credit Credit booms Emerging and frontier financial markets Financial markets Money
English
Publication Date:
January 26, 2018
ISBN/ISSN:
9781484339671/1018-5941
Stock No:
WPIEA2018023
Pages:
76
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