Good Booms, Bad Booms
64 Pages Posted: 20 Feb 2014 Last revised: 18 Sep 2020
Date Written: May 1, 2018
Credit Booms are not rare; some end in a crisis (bad booms) while others do not (good booms). We document that credit booms start with an increase in productivity growth, which subsequently falls faster during bad booms. We develop a model in which crises happen when credit booms change to an information regime with careful examination of collateral. As this examination is more valuable when collateral backs projects with low productivity, crises are more likely during booms that display productivity declines. We test the main predictions of the model and identify a component of productivity that is behind crises.
Keywords: Financial Crises, Credit Booms, Productivity
JEL Classification: E3, E5
Suggested Citation: Suggested Citation