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Credit Booms and Busts in the Caribbean

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  • Moore, Winston
  • Lewis-Bynoe, Denny
  • Howard, Stacia

Abstract

Since 1970, private sector credit has grown quite rapidly in the Caribbean. More recently, between 2004 and 2006, total real credit in the Caribbean has risen by a cumulative 55.7 percent, or approximately 19 percent per annum. In some countries, the rate of expansion has even been stronger, which is of concern given the likely negative macroeconomic consequences of credit booms. This paper attempts to identify the factors that have led to credit booms and conversely busts in the Caribbean, employing annual data for 13 Caribbean countries covering the period 1970 to 2006 in the analysis. This study employs a panel count data regression approach. Three key groups of variables are considered: (1) macroeconomic developments; (2) macroeconomic policy, and (3) external shocks. The reported results suggest that macroeconomic developments were the main determinants of credit booms in the Caribbean, with low inflation, high growth in GDP per capita, investment booms as well as less developed financial systems leading to the emergence of credit booms and conversely for busts.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21472.

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Date of creation: 02 Feb 2010
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Handle: RePEc:pra:mprapa:21472

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Keywords: Credit Booms; Credit Busts; Caribbean; Count Data Model;

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References

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  1. Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November.
  2. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
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  4. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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  7. Enrique G. Mendoza & Marco E. Terrones, 2008. "An anatomy of credit booms: evidence from macro aggregates and micro data," International Finance Discussion Papers 936, Board of Governors of the Federal Reserve System (U.S.).
  8. Blackburn, Keith & Hung, Victor T Y, 1998. "A Theory of Growth, Financial Development and Trade," Economica, London School of Economics and Political Science, vol. 65(257), pages 107-24, February.
  9. Cottarelli, Carlo & Dell'Ariccia, Giovanni & Vladkova-Hollar, Ivanna, 2005. "Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 83-104, January.
  10. Amelia Santos-Paulino & A. P. Thirlwall, 2004. "The impact of trade liberalisation on exports, imports and the balance of payments of developing countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F50-F72, 02.
  11. Marco Terrones & Enrique G. Mendoza, 2008. "An Anatomy of Credit Booms," IMF Working Papers 08/226, International Monetary Fund.
  12. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, October.
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Cited by:
  1. Carter, Justin & Moore, Winston & Jackman, Mahalia, 2012. "Is the Magnitude of Household Debt in Barbados a Concern?," MPRA Paper 47791, University Library of Munich, Germany.

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