Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries
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Summary:
Using a comprehensive database on bank credit, covering 135 developing countries over the period 1960–2011, we identify, document, and compare the macro-economic dynamics of credit booms across low- and middle-income countries. The results suggest that while the duration and magnitude of credit booms is similar across country groups, macro-economic dynamics differ somewhat in low-income countries. We further find that surges in capital inflows are associated with credit booms. Moreover, credit booms associated with banking crises exhibit distinct macroeconomic dynamics, while also reflecting a potentially large deviation of credit from country fundamentals. These results suggest that low-income countries should remain mindful of the inter-linkages between financial liberalization, increased cross-border banking activities, and rapid credit growth.
Series:
Working Paper No. 2015/011
Subject:
Balance of payments Banking crises Capital inflows Credit Credit booms Financial crises Monetary expansion Monetary policy Money
English
Publication Date:
January 22, 2015
ISBN/ISSN:
9781484356869/1018-5941
Stock No:
WPIEA2015011
Pages:
47
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