31 Pages Posted: 22 Mar 2011
Date Written: March 2011
Recoveries that occur in the absence of credit growth are often dubbed miracles and named after mythical creatures. Yet these are not rare animals, and are not always miracles. About one out of five recoveries is "creditless", and average growth during these episodes is about a third lower than during "normal" recoveries. Aggregate and sectoral data suggest that impaired financial intermediation is the culprit. Creditless recoveries are more common after banking crises and credit booms. Furthermore, sectors more dependent on external finance grow relatively less and more financially dependent activities (such as investment) are curtailed more during creditless recoveries.
Keywords: Bank credit, Banking crisis, Business cycles, Credit expansion, Cross country analysis, Developed countries, Economic growth, Economic recovery, Emerging markets, Financial crisis, Industrial investment, Private sector
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