Economic and political drivers of the duration of credit booms

Vitor Castro and Rodrigo Martins

No 15/2018, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper presents a new perspective on the study of credit booms by examining what determines their duration and by testing for relevant political features. The results from the estimation of a discrete-time duration model show that not only economic factors but also political dynamics play an important role in explaining the duration of credit booms. These are found to last longer when the economy is both growing faster and exhibits lower levels of liquidity in the banking system; but credit booms tend to be shorter when countries improve their current account position. Furthermore, their duration is affected by the electoral cycle as well as when centre parties are in office. Credit expansions that end in a banking crisis are also found to be statistically longer and their duration more sensitive to economic and political factors. Finally, we find strong evidence that Central Bank independence and the length of credit booms are inversely related.

Keywords: Credit Booms; Duration Analysis; Political Cycles; Ideology; Central Bank independence. (search for similar items in EconPapers)
JEL-codes: C41 D72 E32 E51 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-pol
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