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The collapse of credit booms: a competing risks analysis

Author

Listed:
  • Vítor Castro
  • Rodrigo Martins

Abstract

Purpose - This paper analyses the collapse of credit booms into soft landings or systemic banking crises. Design/methodology/approach - A discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms. Findings - The results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. Moreover, both types of credit expansions display positive duration dependence, i.e. both are more likely to end as they grow older, but hard landing credit booms have proven to be longer than those that land softly. Originality/value - This paper contributes to our understanding of what affects the length of credit booms and why some end up creating havoc and others do not. In particular, it calls the attention to the important role that Central Bank independence plays regarding credit booms length and outcome.

Suggested Citation

  • Vítor Castro & Rodrigo Martins, 2020. "The collapse of credit booms: a competing risks analysis," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(6), pages 1437-1465, June.
    • Handle: RePEc:eme:jespps:jes-04-2019-0196
    DOI: 10.1108/JES-04-2019-0196
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    Citations

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    Cited by:

    1. Avdjiev, Stefan & Binder, Stephan & Sousa, Ricardo, 2021. "External debt composition and domestic credit cycles," Journal of International Money and Finance, Elsevier, vol. 115(C).

    More about this item

    Keywords

    Credit booms; Duration analysis; Competing risks model; Multinomial logit; Central bank independence; C25; C41; E51;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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