Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries

48 Pages Posted: 23 Feb 2015

See all articles by Marco Arena

Marco Arena

International Monetary Fund (IMF)

Serpil Bouza

International Monetary Fund (IMF)

Era Dabla-Norris

International Monetary Fund (IMF)

Kerstin Gerling

International Monetary Fund (IMF)

Lamin Njie

International Monetary Fund (IMF)

Date Written: January 2015

Abstract

Using a comprehensive database on bank credit, covering 135 developing countries over the period 1960–2011, we identify, document, and compare the macro-economic dynamics of credit booms across low- and middle-income countries. The results suggest that while the duration and magnitude of credit booms is similar across country groups, macro-economic dynamics differ somewhat in low-income countries. We further find that surges in capital inflows are associated with credit booms. Moreover, credit booms associated with banking crises exhibit distinct macroeconomic dynamics, while also reflecting a potentially large deviation of credit from country fundamentals. These results suggest that low-income countries should remain mindful of the inter-linkages between financial liberalization, increased cross-border banking activities, and rapid credit growth.

Keywords: Credit booms, Low-income developing countries, Banking crisis, Bank supervision, macroeocnomic dynamics, low-income countries, emerging market economies., capital inflows, banking crises, financial deepening, banking supervision, financial reforms, financial liberalization, exchange rate flexibility, lending, financial crises, financial crisis, liquidity, trading, ownership, reserve requirements, economic growth, financial markets, state ownership, capital flows, empirical analysis, capital adequacy, bank restructuring, guarantees, interest rates, financial sector development, audits, financial integration, debt, financial distress, capital controls, emerging markets, risk taking, empirical

JEL Classification: E32, E44, E51, G21

Suggested Citation

Arena, Marco and Bouza, Serpil and Dabla-Norris, Era and Gerling, Kerstin and Njie, Lamin, Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries (January 2015). IMF Working Paper No. 15/11, Available at SSRN: https://ssrn.com/abstract=2568586

Marco Arena

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Serpil Bouza

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Era Dabla-Norris

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Kerstin Gerling

International Monetary Fund (IMF) ( email )

Lamin Njie

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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