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

_IMF Working Papers, January 22, 2015_

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## Bibliographic details
- Authors: Marco Arena, Serpil Bouza, Era Dabla-Norris, Kerstin Gerling, Lamin Njie
- Published: January 22, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484356869.001

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### Summary
- Using a comprehensive database on bank credit, covering 135 developing countries over the period 1960–2011, the paper identifies, documents, and compares the macro-economic dynamics of credit booms across low- and middle-income countries.
- Main high-level conclusion: duration and magnitude of credit booms are similar across country groups, but macroeconomic dynamics differ somewhat in low-income countries.
- Surges in capital inflows are associated with credit booms.
- Credit booms associated with banking crises exhibit distinct macroeconomic dynamics and reflect a potentially large deviation of credit from country fundamentals.
- Policy takeaway: low-income countries should remain mindful of inter-linkages between financial liberalization, increased cross-border banking activities, and rapid credit growth.

### Key findings and evidence
- Sample and period:
  - Database covers 135 developing countries.
  - Analysis period: 1960–2011.
- Comparative stylized facts:
  - Duration and magnitude of credit booms: similar across low- and middle-income country groups.
  - Macroeconomic dynamics: differ somewhat in low-income countries relative to middle-income countries.
- Capital flows:
  - Surges in capital inflows are empirically associated with the occurrence of credit booms.
- Banking crises linkage:
  - Credit booms that culminate in banking crises show distinct macroeconomic dynamics.
  - Such boom episodes may reflect a potentially large deviation of credit from country fundamentals.

### Policy implications and recommendations
- Remain vigilant about the interplay between:
  - Financial liberalization;
  - Increased cross-border banking activities; and
  - Rapid credit growth.
- For low-income countries, monitoring capital inflows is important given their association with credit booms.
- Pay special attention to credit booms that may deviate substantially from fundamentals, as these are more likely to be associated with banking crises and adverse macroeconomic dynamics.

### Keywords and topics covered
- Balance of payments, Banking crises, Capital inflows, Credit, Credit booms, Financial crises, Monetary expansion, Monetary policy, Money
- Analysis terms appearing in the paper: analysis of credit boom, banking, boom episode, boom magnitude, characteristics of credit boom, 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

*Source: IMF Working Paper by Marco Arena, Serpil Bouza, Era Dabla-Norris, Kerstin Gerling, and Lamin Njie; January 22, 2015.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/credit-booms-and-macroeconomic-dynamics-stylized-facts-and-lessons-for-low-income-countries-42615_