Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries

Marco Arena, Serpil Bouza, Era Dabla-Norris, Kerstin Gerling and Lamin Njie

No 2015/011, IMF Working Papers from International Monetary Fund

Abstract: Using a comprehensive database on bank credit, covering 135 developing countries over the period 1960–2011, we identify, document, and compare the macro-economic dynamics of credit booms across low- and middle-income countries. The results suggest that while the duration and magnitude of credit booms is similar across country groups, macro-economic dynamics differ somewhat in low-income countries. We further find that surges in capital inflows are associated with credit booms. Moreover, credit booms associated with banking crises exhibit distinct macroeconomic dynamics, while also reflecting a potentially large deviation of credit from country fundamentals. These results suggest that low-income countries should remain mindful of the inter-linkages between financial liberalization, increased cross-border banking activities, and rapid credit growth.

Keywords: WP; credit boom; boom episode; credit-to-GDP; banking; Credit booms; macroeocnomic dynamics; low-income countries; emerging market economies; credit growth; credit percapita; analysis of credit boom; characteristics of credit boom; percentage of credit boom; growth rate; probability of credit boom episode; end of the credit boom; boom magnitude; probability of a credit boom; Capital inflows; Credit; Banking crises; Monetary expansion; Global (search for similar items in EconPapers)
Pages: 47
Date: 2015-01-22
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Citations: View citations in EconPapers (25)

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