The Riskiness of Credit Allocation and Financial Stability

Luis Brandão-Marques, Qianying Chen (qchen2@imf.org), Claudio Raddatz, Jerome Vandenbussche and Peichu Xie
Authors registered in the RePEc Author Service: Luis Brandao Marques

No 2019/207, IMF Working Papers from International Monetary Fund

Abstract: We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.

Keywords: WP; credit allocation; real GDP; Corporate debt; credit risk; financial leverage; financial vulnerability; financial crises; macro-financial stability; credit expansion; IFS credit data; countercyclical credit policy; credit spread; supply shift; credit quality; credit series; credit boom dummy; credit-to-GDP ratio; Credit; Financial conditions index; Credit booms; Bank credit; Global (search for similar items in EconPapers)
Pages: 39
Date: 2019-09-27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=48670 (application/pdf)

Related works:
Journal Article: The riskiness of credit allocation and financial stability (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2019/207

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi (amodi@imf.org).