EconPapers    
Economics at your fingertips  
 

Current Account and Credit Growth: The Role of Household Credit and Financial Depth

Mehmet Ekinci and Tolga Omay ()

MPRA Paper from University Library of Munich, Germany

Abstract: Understanding the impact of financial variables on the current account balance is one of the priorities of academic literature and policy makers. Evidence from a broad panel of countries shows that an increase in the credit growth causes a significant deterioration in the current account balance. We find that this result is driven by household credit. Furthermore, we show that total and household credit growth rates have a stronger negative effect on the current account balance for lower levels of financial depth. In other words, the demand boom associated with the credit expansion gets weaker for higher levels of financial depth. Thus, our findings are in line with the ``too much finance'' hypothesis which states that positive impact of financial development on economic growth vanishes as the level of financial depth increases. Our results suggest that targeted policy measures which curb the excessive household credit growth might be more effective to reduce the external imbalances particularly at the early stages of financial deepening.

Keywords: Credit Growth; Current Account Balance; Global Imbalances and Panel Data (search for similar items in EconPapers)
JEL-codes: C33 F3 F32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-fdg
Date: 2019-05-12
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/93882/1/MPRA_paper_93882.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:93882

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2019-10-21
Handle: RePEc:pra:mprapa:93882