## Rapid Credit Growth: Boon or Boom-Bust?

_IMF Working Papers, October 1, 2011_

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## Bibliographic details
- Authors: Selim A Elekdag, Yiqun Wu
- Published: October 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463922627.001

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### Executive summary and main findings
- Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises.
- The paper presents findings from 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.
- Domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances.
- For emerging economies:
  - 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.

### Empirical approach and scope
- Method: Comprehensive event study of credit boom episodes.
- Sample size: 99 credit booms.
- Geographic coverage: Advanced and emerging economies (including emerging Asia referenced in keywords).
- Key variables discussed: real credit growth, domestic policy rates, international interest rates (proxy for global liquidity), capital inflows, macroeconomic and financial imbalances.

### Policy-relevant implications
- Monetary policy: Domestic policy rates below trend during the pre-peak phase indicate that loose domestic monetary policy can fuel credit booms and associated imbalances.
- External versus domestic drivers: While global liquidity and external factors matter for credit dynamics in emerging economies, domestic monetary conditions are a significant and direct driver of real credit growth.
- Macroprudential and policy mix considerations: Results imply attention to domestic monetary stances and capital flow management when addressing rapid credit expansion to mitigate boom-bust risks.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/rapid-credit-growth-boon-or-boom-bust-25305_