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Political and Institutional Determinants of Credit Booms

Author

Listed:
  • Vítor Castro
  • Rodrigo Martins

Abstract

The literature that investigates credit booms has essentially focused on their economic determinants. This paper explores the importance of political conditionings and central bank independence and provides some striking findings on this matter. Estimating a fixed effects logit model over a panel of developed and developing countries for the period 1975q1–2016q4, we find that credit booms are less likely when right‐wing parties are in office, especially in developing countries, and when there is political instability. However, they have not proven to depend on the electoral cycle. More independent Central Banks are also found to reduce the probability of credit booms. Moreover, they seem to be more likely to occur and spread within a monetary union.

Suggested Citation

  • Vítor Castro & Rodrigo Martins, 2019. "Political and Institutional Determinants of Credit Booms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(5), pages 1144-1178, October.
    • Handle: RePEc:bla:obuest:v:81:y:2019:i:5:p:1144-1178
    DOI: 10.1111/obes.12290
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    Citations

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    Cited by:

    1. Gianluca Cafiso, 2022. "Loans to Different Groups and Economic Activity at Times of Crisis and Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 594-623, June.
    2. Vítor Castro & Rodrigo Martins, 2021. "What drives the duration of credit booms?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1531-1549, January.
    3. Vítor Castro & Rodrigo Martins, 2021. "Why are credit booms sometimes sweet and sometimes sour?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 3054-3074, April.
    4. Sun, Yunpeng & Gozgor, Giray & Lau, Chi Keung Marco & Soliman, Alaa M., 2025. "Inclusive finance and sustainability: The dynamic spillover effects of uncertainties on access to credit," Research in International Business and Finance, Elsevier, vol. 73(PA).
    5. Thanh C. Nguyen & Vítor Castro & Justine Wood, 2022. "Political environment and financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 417-438, January.
    6. Nguyen, Thanh Cong, 2022. "Economic policy uncertainty: The probability and duration of economic recessions in major European Union countries," Research in International Business and Finance, Elsevier, vol. 62(C).
    7. Hegerty, Scott W., 2024. "Commodity prices and domestic credit in Central and Eastern Europe: Are there asymmetric effects?," Economic Systems, Elsevier, vol. 48(1).
    8. Edward I. Altman, 2024. "Forecasting Credit Cycles: The Case of the Leveraged Finance Market in 2024 and Outlook," JRFM, MDPI, vol. 17(8), pages 1-10, August.
    9. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2023. "A quest between fiscal and market discipline," Economic Modelling, Elsevier, vol. 119(C).
    10. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2025. "Speculative-Grade sovereign rating Cycles: Sovereign debt Defaults, restructurings and resolution," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    11. Vítor Castro & Rodrigo Martins, 2020. "Riding the Wave of Credit: Are Longer Expansions Really a Bad Omen?," Open Economies Review, Springer, vol. 31(4), pages 729-751, September.
    12. Vítor Castro & Pedro A. Cerqueira & Rodrigo Martins, 2024. "Is There a Pervasive World Real Credit Cycle?," Open Economies Review, Springer, vol. 35(1), pages 99-119, February.
    13. Thanh Cong Nguyen & Vítor Castro & Justine Wood, 2022. "Political economy of financial crisis duration," Public Choice, Springer, vol. 192(3), pages 309-330, September.
    14. Michael Lokshin & Aylén Rodriguez‐Ferrari & Iván Torre, 2024. "Electoral cycles and public spending during the pandemic," Review of Development Economics, Wiley Blackwell, vol. 28(3), pages 1077-1107, August.
    15. Thanh Cong Nguyen & Trung Hieu Le, 2024. "Financial crises and the national logistics performance: Evidence from emerging and developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1834-1855, April.
    16. Avdjiev, Stefan & Binder, Stephan & Sousa, Ricardo, 2021. "External debt composition and domestic credit cycles," Journal of International Money and Finance, Elsevier, vol. 115(C).
    17. Sever, Can & Yücel, Emekcan, 2022. "The effects of elections on macroprudential policy," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 507-533.

    More about this item

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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