Riding the Wave of Credit: Are Longer Expansions Really a Bad Omen?

Vitor Castro and Rodrigo Martins

Open Economies Review, 2020, vol. 31, issue 4, No 1, 729-751

Abstract: Abstract Some studies argue that credit booms that end up in banking crises are usually longer than those that end without creating havoc. However, they do not test this hypothesis empirically. This paper employs a duration model to assess the relationship between the length of credit booms and their outcome. The empirical analysis shows that credit expansions that end in banking crisis are indeed more prone to last longer than those that end softly. Furthermore, differences in length patterns are found to start in the build-up phase, extending to the unwinding phase of credit cycles.

Keywords: Credit booms; Duration analysis; Banking crisis (search for similar items in EconPapers)
JEL-codes: C41 E51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11079-019-09570-6

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