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

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Listed:
  • Mr. Marco Arena
  • Serpil Bouza
  • Ms. Era Dabla-Norris
  • Mrs. Kerstin Gerling
  • Lamin Njie

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.

Suggested Citation

  • Mr. Marco Arena & Serpil Bouza & Ms. Era Dabla-Norris & Mrs. Kerstin Gerling & Lamin Njie, 2015. "Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries," IMF Working Papers 2015/011, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/011
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    References listed on IDEAS

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    Cited by:

    1. Daniela Marchettini & Mr. Rodolfo Maino, 2015. "Systemic Risk Assessment in Low Income Countries: Balancing Financial Stability and Development," IMF Working Papers 2015/190, International Monetary Fund.
    2. Bouvatier, Vincent & El Ouardi, Sofiane, 2023. "Credit gaps as banking crisis predictors: A different tune for middle- and low-income countries," Emerging Markets Review, Elsevier, vol. 54(C).
    3. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    4. Vítor Castro & Rodrigo Martins, 2018. "Economic and political drivers of the duration of credit booms," NIPE Working Papers 15/2018, NIPE - Universidade do Minho.
    5. Michael Machokoto & Daniel Gyimah & Boulis Maher Ibrahim, 2022. "The evolution of trade credit: new evidence from developed versus developing countries," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 857-912, October.
    6. Akhilesh K. Verma & Rajeswari Sengupta, 2021. "Interlinkages between external debt financing, credit cycles and output fluctuations in emerging market economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 965-1001, November.
    7. Vítor Castro & Rodrigo Martins, 2019. "Political and Institutional Determinants of Credit Booms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(5), pages 1144-1178, October.
    8. Channarith Meng & Roberto Leon Gonzalez, 2017. "Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries?," Open Economies Review, Springer, vol. 28(3), pages 547-579, July.
    9. Vítor Castro & Rodrigo Martins, 2020. "Riding the Wave of Credit: Are Longer Expansions Really a Bad Omen?," Open Economies Review, Springer, vol. 31(4), pages 729-751, September.
    10. Miguel Angel Saldarriaga, 2017. "Credit Booms in Commodity Exporters," Working Papers 98, Peruvian Economic Association.
    11. Chokri Zehri & Zagros Madjd‐Sadjadi, 2024. "Capital flow management and monetary policy to control credit growth," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 637-676, July.
    12. Vítor Castro & Rodrigo Martins, 2021. "Why are credit booms sometimes sweet and sometimes sour?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 3054-3074, April.
    13. Franziska Ohnsorge & Shu Yu, 2017. "Recent Credit Surge in Historical Context," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-22, February.
    14. Ryszard Kata & Malgorzata Wosiek, 2020. "Capital Mobility as a Reason for Credit Booms in the Eurozone," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 718-738.
    15. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications - Books, The World Bank Group, number 25823.
    16. Ivan De Lorenzo Buratta, 2022. "Mind the Build-up: Quantifying Tail Risks for Credit Growth in Portugal," Working Papers w202207, Banco de Portugal, Economics and Research Department.
    17. Didar Erdinc & Lea Mitic, 2019. "Foreign Bank Penetration and the Bank Lending Channel in Emerging and Developing Countries, 2000-2014," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 7(2), pages 1-18.

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