Financial Conditions and Growth at Risk in the ECCU

43 Pages Posted: 22 Jan 2020

See all articles by Takuji Komatsuzaki

Takuji Komatsuzaki

International Monetary Fund (IMF)

Steve Brito

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

We study the growth determinants in the Eastern Caribbean Currency Union (ECCU), using the Growth at Risk (GaR) framework with a focus on financial variables. We find that excessive bank credit growth is associated with lower future real GDP growth in the medium term especially on the low quantiles of growth distribution. Moreover, worsening of both global financial conditions and external conditions are associated with lower future growth in the short term, especially at the high quantiles of growth distribution. Country-specific results are broadly in line with ECCU-wide results, with some variation potentially due to the strong Citizenship-By-Investment program inflows and lack of credit union data. The establishment of a macroprudential framework in the ECCU would need to pay close attention to credit growth not only of banks but also credit unions and continue to monitor global and external conditions.

Keywords: Financial crises, Economic conditions, Real sector, Macroprudential policies and financial stability, Foreign direct investment, macrofinancial linkages, downside risks, Caribbean, WP, ECCU, quantiles, real GDP growth, GDP growth, financial variable

JEL Classification: G2, E37, F44, E01, E52, G21, E63

Suggested Citation

Komatsuzaki, Takuji and Brito, Steve, Financial Conditions and Growth at Risk in the ECCU (November 2019). IMF Working Paper No. 19/247. Available at SSRN: https://ssrn.com/abstract=3523119

Takuji Komatsuzaki (Contact Author)

International Monetary Fund (IMF) ( email )

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

Steve Brito

International Monetary Fund (IMF) ( email )

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

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