Lending Standards and Output Growth

Divya Kirti

No 2018/023, IMF Working Papers from International Monetary Fund

Abstract: While some credit booms are followed by economic underperformance, many are not. Can lending standards help separate good credit booms from bad credit booms contemporaneously? To observe lending standards internationally, I use information from primary debt capital markets. I construct the high-yield (HY) share of bond issuance for a panel of 38 countries. The HY share is procyclical, suggesting that lending standards in bond markets are extrapolative. Credit booms with deteriorating lending standards (rising HY share) are followed by lower GDP growth in the subsequent three to four years. Such booms deserve attention from policy makers.

Keywords: WP; HY share; lending standard; credit boom; Lending standards; credit cycles; risky debt share; behavioral finance; share help; share of bond issuance; GDP gap; share of issuance; Credit booms; Credit; Consumer credit; Bank credit; Emerging and frontier financial markets; Global (search for similar items in EconPapers)
Pages: 76
Date: 2018-01-26
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Citations: View citations in EconPapers (12)

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Journal Article: Lending standards and output growth (2025)
Working Paper: Lending standards and output growth (2018)
Working Paper: Lending standards and output growth (2018)
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