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Credit booms and macrofinancial stability

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  • Giovanni Dell’Ariccia
  • Deniz Igan
  • Luc Laeven
  • Hui Tong

Abstract

This paper explores several questions about credit booms and busts: When do credit booms occur? When do they end up in busts, and when do they not? What are the implications for different policies if curbing credit growth and/or mitigating the associated risks is an objective? We find that credit booms are often associated with financial reform and economic growth. They also tend to be more frequent in fixed exchange rate regimes. Only one in three credit boom episodes are followed by a financial crisis. These booms tend to be larger and last longer. Macroprudential tools have at times proven effective in containing booms, and more often in limiting the consequences of busts, due to the buffers they helped to build.

Suggested Citation

  • Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven & Hui Tong, 2016. "Credit booms and macrofinancial stability," Economic Policy, CEPR;CES;MSH, vol. 31(86), pages 299-355.
  • Handle: RePEc:oup:ecpoli:v:31:y:2016:i:86:p:299-355.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiw002
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    Cited by:

    1. Philippon, Thomas, 2016. "The FinTech Opportunity," CEPR Discussion Papers 11409, C.E.P.R. Discussion Papers.
    2. Samuel GUÉRINEAU & Florian LÉON, 2016. "Information sharing, credit booms, and financial stability," Working Papers P159, FERDI.
    3. Marcin Kolasa & Krzysztof Makarski & Michal Brzoza-Brzezina, 2015. "Crisis, contagion and international policy spillovers under foreign ownership of banks," 2015 Meeting Papers 595, Society for Economic Dynamics.
    4. Brzoza-Brzezina, Michał & Kolasa, Marcin & Makarski, Krzysztof, 2017. "Monetary and macroprudential policy with foreign currency loans," Journal of Macroeconomics, Elsevier, pages 352-372.
    5. repec:kap:openec:v:28:y:2017:i:3:d:10.1007_s11079-016-9425-9 is not listed on IDEAS
    6. Samuel GUÉRINEAU & Florian LÉON, 2016. "Information sharing, credit booms, and financial stability," Working Papers P159, FERDI.
    7. Channarith Meng & Roberto Leon Gonzalez, 2017. "Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries?," Open Economies Review, Springer, pages 547-579.
    8. repec:eee:jbfina:v:82:y:2017:i:c:p:98-111 is not listed on IDEAS

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