Rapid Credit Growth: Boon or Boom-Bust?

Selim Elekdag and Yiqun Wu

No 2011/241, IMF Working Papers from International Monetary Fund

Abstract: Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of 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. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while 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 across emerging economies.

Keywords: WP; credit boom; credit growth; fiscal policy; current account; credit dynamics During Booms Real Credit; quite a few boom; real GDP; credit; credit booms; boom-bust cycles; financial crises; emerging Asia; emerging economy; credit bust; growth episode; Capital inflows; Bank credit; Central bank policy rate; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 42
Date: 2011-10-01
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Citations: View citations in EconPapers (51)

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