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Assessing the Sustainability of Credit Growth: The case of Central and Eastern European Countries

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  • Virginie Coudert
  • Cyril Pouvelle

Abstract

Credit growth rates as high as 30% or 50% a year were observed in some Central Eastern European countries (CEECs) in 2006-2007, such as the Baltic States, Bulgaria or Romania. This strong credit growth could have been due to the catching-up process but could also have been excessive, paving the way to the credit crunch that followed the crisis in 2008-2009. We try to assess the excessiveness of credit by applying a number of methods. First, we consider the gap between current credit and its long-term trend and we find some signs of credit booms, in several CEECs in 2005-2007. Second, we assess the “normal” growth of credit with regard to fundamentals through econometric estimations. Credit growth is also shown to have been excessive in several countries just before the 2008-2009 financial crisis.

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Bibliographic Info

Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

Volume (Year): 7 (2010)
Issue (Month): 1 (June)
Pages: 87-120

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Handle: RePEc:liu:liucej:v:7:y:2010:i:1:p:87-120

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Keywords: credit boom; transition; financial development;

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References

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  1. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  3. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," NBER Working Papers 8249, National Bureau of Economic Research, Inc.
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Cited by:
  1. Niels-Jakob Harbo Hansen & Olga Sulla, 2013. "Credit Growth in Latin America," IMF Working Papers 13/106, International Monetary Fund.
  2. Dobromil Serwa, 2011. "Identifying multiple regimes in the model of credit to households," National Bank of Poland Working Papers 99, National Bank of Poland, Economic Institute.
  3. Buncic, Daniel & Martin Melecky, 2013. "Equilibrium Credit: The Reference Point for Macroprudential Supervisors," Economics Working Paper Series 1301, University of St. Gallen, School of Economics and Political Science.
  4. Hansen, Niels-Jakob & Sulla, Olga, 2013. "El crecimiento del crédito en América Latina: ¿Desarrollo financiero o boom crediticio?," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 25, pages 51-80.
  5. Lahura, Erick & Chang, Giancarlo & Salazar, Oscar, 2013. "Identificación de Episodios de Auge Crediticio: Una propuesta Metodológica con Fundamentos Económicos," Working Papers 2013-011, Banco Central de Reserva del Perú.

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