Duration dependence and change-points in the likelihood of credit booms ending

Vitor Castro () and Megumi Kubota
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Vitor Castro: University of Coimbra, GEMF and NIPE, Portugal

No 2013-17, GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra

Abstract: Whether the likelihood of a credit boom ending is dependent on its age or not, or whether the respective behavior is smooth or bumpy are important issues to which the economic literature has not given attention yet. This paper tries to fill that gap, exploring those issues with a proper duration analysis. Credit booms are identified considering two criteria well established in the literature: (i) the Mendoza-Terrones criteria and (ii) and the Gourinchas-Valdes-Landarretche criteria. A continuous-time Weibull duration model is employed over a group of 71 countries for the period 1975q1-2010q4 to investigate whether credit booms are duration dependent or not. The findings show that the likelihood of credit booms ending increases over their duration and that these events have become longer over the past decades. In addition, the paper extends the baseline Weibull duration model in order to allow for change-points in the duration dependence parameter. The empirical findings support the presence of a change-point: increasing positive duration dependence is observed in booms that last less than eight to ten quarters, but it becomes decreasing or even irrelevant for longer events. Analogous results are found for those credit boom episodes that are followed by systemic banking crisis (bad credit booms). The findings also show that credit booms are, on average, longer in industrial than in developing countries.

Keywords: Credit booms; duration analysis; Weibull model; duration dependence; changepoints. (search for similar items in EconPapers)
JEL-codes: C41 E32 E51 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Duration dependence and change-points in the likelihood of credit booms ending (2013)
Working Paper: Duration dependence and change-points in the likelihood of credit booms ending (2013)
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