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Riding the Wave of Credit: Are Longer Expansions Really a Bad Omen?

Author

Listed:
  • Vítor Castro

    (Loughborough University
    University of Minho)

  • Rodrigo Martins

    (University of Coimbra
    Centre for Business and Economics Research (CeBER))

Abstract

Some studies argue that credit booms that end up in banking crises are usually longer than those that end without creating havoc. However, they do not test this hypothesis empirically. This paper employs a duration model to assess the relationship between the length of credit booms and their outcome. The empirical analysis shows that credit expansions that end in banking crisis are indeed more prone to last longer than those that end softly. Furthermore, differences in length patterns are found to start in the build-up phase, extending to the unwinding phase of credit cycles.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:openec:v:31:y:2020:i:4:d:10.1007_s11079-019-09570-6
    DOI: 10.1007/s11079-019-09570-6
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    References listed on IDEAS

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    Cited by:

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    2. Daniel Carvalho & Etienne Lepers & Rogelio Jr Mercado, 2021. "Taming the "Capital Flows-Credit Nexus": A Sectoral Approach," Trinity Economics Papers tep0921, Trinity College Dublin, Department of Economics.
    3. Bouvatier, Vincent & El Ouardi, Sofiane, 2023. "Credit gaps as banking crisis predictors: A different tune for middle- and low-income countries," Emerging Markets Review, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Credit booms; Duration analysis; Banking crisis;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • 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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