Credit Booms and Macroeconomic Dynamics

Stylized Facts and Lessons for Low-Income Countries

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.
Publication date: January 2015
ISBN: 9781484356869
$18.00
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , International - Economics , macroeocnomic dynamics , low-income countries , emerging market economies , credit , booms , credit boom , banking , Financial Markets and the Macroeconomy , emerging market economies

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