Towards an understanding of credit cycles: do all credit booms cause crises?

Ray Barrell, Dilly Karim and Corrado Macchiarelli

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Macroprudential policy is now based around a countercyclical buffer, relating capital requirements for banks to the degree of excess credit in the economy. We consider the construction of the credit to GDP gap looking at different ways of extracting the cyclical indicator for excess credit. We compare different smoothing mechanisms for the credit gap, and demonstrate that some countries require an AR(2) smoother whilst other do not. We embed these different estimates of the credit gap in Logit models of financial crises, and show that the AR(2) cycle is a much better contributor to their explanation than is the HP filter suggested by the BIS and currently in use in policy making. We show that our results are robust to changes in assumptions, and we make criticisms of current policy settings.

Keywords: credit cycle; financial crisis; banks; macro-prudential policy; filtering (search for similar items in EconPapers)
JEL-codes: E30 E50 G00 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-11-27
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://eprints.lse.ac.uk/118943/ Open access version. (application/pdf)

Related works:
Journal Article: Towards an understanding of credit cycles: do all credit booms cause crises? (2020)
Working Paper: Towards an understanding of credit cycles: do all credit booms cause crises? (2017)
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:ehl:lserod:118943

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().