Determinants of Credit-less Recoveries in the Eastern Caribbean Currency Union

33 Pages Posted: 14 Apr 2022

See all articles by Beverly Lugay

Beverly Lugay

Eastern Caribbean Central Bank

Shernnel Thompson

Eastern Caribbean Central Bank

Date Written: November 9, 2016

Abstract

This paper seeks to understand the factors contributing to credit less recoveries in the Eastern Caribbean Currency Union (ECCU). The identification of credit less recovery episodes, defined as a pick-up in economic growth without an increase in credit, was done using the approach of Abiad et al, 2011. Based on this approach 6 periods of credit-less recoveries were identified in the ECCU using annual data for the period 1986-2015. These recoveries occurred largely in the period 2011-2013, after the 2007/2008 global economic and financial crisis. With the use of logistic regressions, real GDP growth and the ratio of private sector credit to GDP were found to be main determinants of credit-less recoveries. In addition, the change in foreign direct investment and export growth were also found to influence the likelihood of credit less recoveries, though weakly so. One of the implications of the findings is that following a recession linked to the financial system, output could recover without an increase in credit. Therefore, credit growth may not be a necessary condition for an economic recovery. Further, the recovery in the ECCU has been driven mainly by foreign direct investment and services export on account of economic citizenship programs. As such policy makers are encouraged to take a strategic approach to revitalizing growth in the ECCU.

Keywords: ECCU, Credit-less Recoveries, Credit, Currency Union

Suggested Citation

Lugay, Beverly and Thompson, Shernnel, Determinants of Credit-less Recoveries in the Eastern Caribbean Currency Union (November 9, 2016). Available at SSRN: https://ssrn.com/abstract=4052966 or http://dx.doi.org/10.2139/ssrn.4052966

Beverly Lugay (Contact Author)

Eastern Caribbean Central Bank ( email )

Basseterre, St. Kitts
Saint Kitts and Nevis

Shernnel Thompson

Eastern Caribbean Central Bank ( email )

P.O. Box 89, Pond Road, Bird Rock
Basseterre, St. Kitts 0000
Saint Kitts and Nevis

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