Capital Surges and Credit Booms: How Tight is the Relationship?

Puspa Amri (), Greg M. Richey and Thomas D. Willett
Additional contact information
Greg M. Richey: California State University, San Bernardino
Thomas D. Willett: Claremont Graduate University and Claremont McKenna College and Director of Claremont Institute for Economic Policy Studies (CIEPS)

Open Economies Review, 2016, vol. 27, issue 4, No 2, 637-670

Abstract: Abstract It has been frequently argued that surges in capital inflows are a major cause of credit booms and banking crises in emerging market economies. This view suggests that there is little role that can be played by domestic policy to break this linkage. This need not be the case. We show that the linkage between surges and booms is not as strong as is often assumed. One problem with most previous studies is that a wide range of measures for both surges and booms has been used with little checking of the robustness of results. We deal with this issue by replicating 14 different measures of capital surges (gross and net) and 5 credit boom proxies from the literature on a sample of 46 countries from 1981–2010. A second difficulty is that some previous studies have not distinguished between the proportions of surges followed by booms and booms preceded by surges. We found substantial differences between these two relationships. While there is a good deal of variation in the individual correlations the vast majority of the calculated probabilities of a surge being followed by a credit boom fall within the range of 4 % to 13 %. Although the proportion of credit booms preceded by surges is higher, the correlations for both directions are much lower than are frequently assumed. While the probabilities of a surge being followed by a credit boom generally increased from the 1980s to the 1990s they fell again in the 2000s, suggesting the possibility that authorities have become better at limiting the adverse effects of surges on domestic credit growth.

Keywords: Capital surges; Credit booms; Capital inflows; Emerging markets; Financial crises (search for similar items in EconPapers)
JEL-codes: E44 E51 F30 F32 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://link.springer.com/10.1007/s11079-016-9398-8 Abstract (text/html)
Access to full text is restricted to subscribers.

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:kap:openec:v:27:y:2016:i:4:d:10.1007_s11079-016-9398-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2

DOI: 10.1007/s11079-016-9398-8

Access Statistics for this article

Open Economies Review is currently edited by G.S. Tavlas

More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().