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Credit booms and macrofinancial stability

Author

Listed:
  • 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, CESifo, Sciences Po;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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    References listed on IDEAS

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