Lending Standards and Output Growth

January 26, 2018

Preview Citation

Format: Chicago

Divya Kirti. Lending Standards and Output Growth, (USA: International Monetary Fund, 2018) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Bank credit, Consumer credit, Credit, Credit booms, Emerging and frontier financial markets, Financial markets, Money

Keywords: Bank credit, Behavioral finance, Consumer credit, Credit, Credit boom, Credit booms, Credit cycles, Emerging and frontier financial markets, GDP gap, Global, HY share, Lending standard, Lending standards, Risky debt share, Share help, Share of bond issuance, Share of issuance, WP

Publication Details

Pages:

76
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/023
Stock No:

WPIEA2018023
ISBN:

9781484339671
ISSN:

1018-5941

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