Domestic credit cycles ad extreme capital flow episodes

David de Villiers (), Hylton Hollander () and Dawie van Lill ()
Additional contact information
David de Villiers: University of Cape Town
Authors registered in the RePEc Author Service: George Adu

No 57, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: Extreme international capital movements can distort domestic credit boom and bust cycles. Empirical evidence remains unclear about the effectiveness of macroprudential policy and capital controls in maintaining financial stability during these episodes. We construct a panel dataset for 32 countries from 1986Q1 to 2020Q3 and use a probit model to study the role of international capital mobility in shaping the dynamics of domestic credit cycles. A probit model is particularly suited for handling binary outcomes (boom or not boom). Our findings indicate that the credit cycle varies across advanced and emerging market economies. Additionally, heterogeneous capital flow episodes have asymmetric effects on credit booms and busts. We further show that capital controls are more effective in regulating inflows and reducing the likelihood of credit busts, while macroprudential policies are more effective at reducing the probability of credit booms.

Keywords: credit cycle; extreme capital flows; capital controls; Macroprudential Policy (search for similar items in EconPapers)
JEL-codes: E32 E51 E52 F30 F32 F34 F36 G15 G28 (search for similar items in EconPapers)
Date: 2025-07
References: Add references at CitEc
Citations:

Published in ERSA Working Paper Series, July 2025

Downloads: (external link)
https://ersawps.org/index.php/working-paper-series/article/view/57/148 First version, 2025 (application/pdf)

Related works:
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:rza:ersawp:57

Access Statistics for this paper

More papers in ERSA Working Paper Series from Economic Research Southern Africa
Bibliographic data for series maintained by Maggi Sigg ().