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Rapid Credit Growth in Emerging Markets: Boon or Boom-Bust?

Listed author(s):
  • Selim Elekdag
  • Yiqun Wu
Registered author(s):

Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on sixty credit booms across emerging markets. The build-up of credit booms across emerging markets seems to be characterized by loose monetary policy stances, with domestic policy rates below trend during the prepeak phase of credit booms. While credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be tightly associated with real credit growth across emerging markets.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 49 (2013)
Issue (Month): 5 (September)
Pages: 45-62

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Handle: RePEc:mes:emfitr:v:49:y:2013:i:5:p:45-62
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

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