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An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data

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Author Info
Enrique G. Mendoza
Marco E. Terrones

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Abstract

This paper proposes a methodology for measuring credit booms and uses it to identify credit booms in emerging and industrial economies over the past four decades. In addition, we use event study methods to identify the key empirical regularities of credit booms in macroeconomic aggregates and micro-level data. Macro data show a systematic relationship between credit booms and economic expansions, rising asset prices, real appreciations, widening external deficits and managed exchange rates. Micro data show a strong association between credit booms and firm-level measures of leverage, firm values, and external financing, and bank-level indicators of banking fragility. Credit booms in industrial and emerging economies show three major differences: (1) credit booms and the macro and micro fluctuations associated with them are larger in emerging economies, particularly in the nontradables sector; (2) not all credit booms end in financial crises, but most emerging markets crises were associated with credit booms; and (3) credit booms in emerging economies are often preceded by large capital inflows but not by financial reforms or productivity gains.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14049.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:14049

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
F3 - International Economics - - International Finance
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Ayhan Kose & Stijn Claessens & Marco Terrones, 2008. "What Happens During Recessions, Crunches, and Busts?," IMF Working Papers 08/274, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Argandoña, Antonio, 2009. "Can corporate social responsibility help us understand the credit crisis?," IESE Research Papers D/790, IESE Business School. [Downloadable!]
  3. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: challenges for macroeconomics and policy," Discussion Papers 27, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  4. Selim Elekdag & Roberto Cardarelli & Subir Lall, 2009. "Financial Stress, Downturns, and Recoveries," IMF Working Papers 09/100, International Monetary Fund. [Downloadable!]
  5. Reinhart, Carmen & Reinhart, Vincent, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," CEPR Discussion Papers 6996, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Orrego, Fabrizio, 2009. "Una nota sobre el crecimiento del crédito al sector privado en el Perú," Working Papers 2009-002, Banco Central de Reserva del Perú. [Downloadable!]
  7. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Banking Crises: An Equal Opportunity Menace," NBER Working Papers 14587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Thierry Tressel & Enrica Detragiache, 2008. "Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset," IMF Working Papers 08/265, International Monetary Fund. [Downloadable!]
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