Does Supply or Demand Drive the Credit Cycle? Evidence from Central, Eastern, and Southeastern Europe

62 Pages Posted: 23 Feb 2015

See all articles by Greetje Everaert

Greetje Everaert

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Natasha Che

International Monetary Fund (IMF)

Nan Geng

International Monetary Fund (IMF)

Bertrand Gruss

International Monetary Fund (IMF)

Gregorio Impavido

International Monetary Fund (IMF); World Bank

Yinqiu Lu

International Monetary Fund

Christian Saborowski

International Monetary Fund (IMF)

Jerome Vandenbussche

International Monetary Fund (IMF)

Li Zeng

International Monetary Fund (IMF)

Date Written: January 2015

Abstract

Countries in Central, Eastern, and Southeastern Europe (CESEE) experienced a credit boom-bust cycle in the last decade. This paper analyzes the roles of demand and supply factors in explaining this credit cycle. Our analysis first focuses on a large sample of bank-level data on credit growth for the entire CESEE region. We complement this analysis by five case studies (Latvia, Lithuania, Montenegro, Poland, and Romania). Our results of the panel data analysis indicate that supply factors, on average and relative to demand factors, gained in importance in explaining credit growth in the post-crisis period. In the case studies, we find a similar result for Lithuania and Montenegro, but the other three case studies point to the fact that country experiences were heterogeneous.

Keywords: Credit booms, Montenegro, Lithuania, Latvia, Poland, Romania, Eastern Europe, Credit demand, Supply and demand, Panel analysis, Cross country analysis, Credit Supply, Disequilibrium Model., bank, banks, loans, capital, lending, equity, interest, foreign banks, deposits, banking, cds, inflation, subsidiaries, debt, return on equity, excess demand, bank size, liquid assets, capital adequacy, interest rates, reserve requirements, value, banking system, economic conditions, profitability, interest margin, banking sector, risk, financial leverage, capital flows, nonperforming loans, principal, subsidiary, banking systems, financial deepening, macroeconomic conditions, markets, industry, reserve r

JEL Classification: E32, E51, G10

Suggested Citation

Everaert, Greetje and Che, Natasha and Geng, Nan and Gruss, Bertrand and Impavido, Gregorio and Lu, Yinqiu and Saborowski, Christian and Vandenbussche, Jerome and Zeng, Li, Does Supply or Demand Drive the Credit Cycle? Evidence from Central, Eastern, and Southeastern Europe (January 2015). IMF Working Paper No. 15/15. Available at SSRN: https://ssrn.com/abstract=2568590

Greetje Everaert (Contact Author)

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Natasha Che

International Monetary Fund (IMF) ( email )

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

Nan Geng

International Monetary Fund (IMF) ( email )

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

Bertrand Gruss

International Monetary Fund (IMF) ( email )

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

Gregorio Impavido

International Monetary Fund (IMF) ( email )

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

HOME PAGE: http://www.imf.org

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Yinqiu Lu

International Monetary Fund ( email )

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

Christian Saborowski

International Monetary Fund (IMF) ( email )

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

Jerome Vandenbussche

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Li Zeng

International Monetary Fund (IMF) ( email )

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

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