The impact of real estate, inequality and current account imbalances on excessive credit: A cross country analysis

Asyraf Abdul Halim, Muhammad Ariff and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: The numerous financial crises in the 20th and 21st century demonstrate the role of excessive credit as the main instigator of financial crises. Could this excessive credit be natural byproducts of lingering economic ailments such as, income inequality, property bubbles and persistent current account imbalances? This study attempts to answer this question by applying the Least Squares Dummy Variable (LSDVC) and dynamic GMM estimations based on the data of ten countries from the year 2004 to 2012. Whilst past literature have investigated the effect of income inequality, dominant real estate sector and current account imbalances on excessive credit separately, this study extends the literature by examining the impact of all three variables on excessive credit aggregately. Our findings tend to indicate that there do exist a positive relationship between all three variables and excessive credit. However, we found that only income inequality and the real estate sector contribute significantly to excessive credit but current account imbalances only marginally do so. We also discovered that the contribution to excessive credit by the banking sector is just about twice the amount of all three variables combined. Our results serve as evidence for policymakers interested in reducing excessive credit by controlling all three variables as well as the banking sector.

Keywords: Excessive Credit; Inequality; Real Estate; Current Account Imbalances; Credit-to- GDP Gap. (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 G15 (search for similar items in EconPapers)
Date: 2016-06-17
New Economics Papers: this item is included in nep-acc, nep-mac, nep-net and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72093

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