Household Credit in the New Europe: Lending Boom or Sustainable Growth?
AbstractRetail lending grew very fast in the New Europe region in the last years, prompting a debate on whether such a rapid growth can be considered sustainable. This paper investigates the main determinants of retail lending growth throughout the region. It tries to identify episodes of credit boom and analyzes the possible correlation between such booms, consumption booms and a country external account position. Estimating an aggregate consumption function, under the assumption of liquidity-constrained households, the paper finds that current trends in household credit markets largely reflect an equilibrium phenomenon, in which household credit increases rapidly from extremely low initial levels, in the context of a relaxation of liquidity constraints. The rate of growth of credit responds to changing market conditions on the supply side and to good prospects for income growth. In such an environment, loosening credit market conditions can have sizable effects on consumption, which, in some cases may create macroeconomic imbalances, both in terms of current account deficits and inflationary pressures.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5520.
Date of creation: Mar 2006
Date of revision:
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Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-08 (All new papers)
- NEP-EEC-2006-04-08 (European Economics)
- NEP-FMK-2006-04-08 (Financial Markets)
- NEP-MAC-2006-04-08 (Macroeconomics)
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