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Political and institutional determinants of credit booms

Vitor Castro () and Rodrigo Martins

No 2018-09, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: The literature that investigates credit booms has essentially focused on their economic determinants. The purpose of this paper is to explore the importance of political conditionings and central bank independence. In doing so, a fixed effects logit model is estimated over a panel of 67 countries for the period 1975q1-2016q4. The results show that not only the economic but also the political environment influences significantly the likelihood of credit booms. Even though lending booms have not proven to depend on the electoral cycle, they are less likely when right-wing parties are in office, especially in developing countries, and when the political environment is more unstable. In addition, more independent Central Banks are found to reduce the probability of credit booms. However, when a country’s monetary policy in the hands of a single regional monetary union they are more likely to occur and spread. Some significant differences are also unveiled when comparing industrial with developing countries.

Keywords: Credit booms; Logit model; Political cycles; Government ideology; Central Bank independence. (search for similar items in EconPapers)
JEL-codes: C25 D72 E32 E51 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-09
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Political and Institutional Determinants of Credit Booms (2019) Downloads
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