Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries?

Channarith Meng and Roberto Leon-Gonzalez

No 15-22, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: While earlier studies focus on credit booms in advanced and emerging market countries, this paper examines the characteristics and determinants of credit booms in developing countries. The results find that credit booms in developing countries are less likely to be associated with systemic banking crises. Rather, they are more likely to be the result of financial deepening than of dangerous buildups of financial risks; the prevention of credit booms in developing countries may thus be associated with higher opportunity costs in terms of foregone growth opportunities. Random effect probit and tobit regressions find some evidence that size of financial system and favorable macroeconomic conditions are among the determinants of credit booms. Although monetary and fiscal policies do not help in preventing credit booms in developing countries, we find that prudential regulations and supervision can play a much more effective role in preventing “bad” booms, while incurring substantially lower costs. Although “bad” booms are hard to identify ahead of time, the duration and size of booms, as well as the level of credit aggregates, appear to be useful indicators in determining them.

Pages: 25 pages
Date: 2016-01
New Economics Papers: this item is included in nep-ban, nep-dcm and nep-sea
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Citations: View citations in EconPapers (10)

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Journal Article: Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ngi:dpaper:15-22

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