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What Drives Consumption Booms?

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  • Peter Montiel

Abstract

Consumption booms have been common in both industrial and developing countries, and several explanations have been offered for their occurrence. These include economy-wide wealth effects associated with favorable movements in the terms of trade or euphoric expectations triggered by macroeconomic reforms, Ricardian effects associated with fiscal stabilization, lending booms following financial liberalization, and a variety of distortions in intertemporal relative prices. Using a large cross-country sample of booms, this article assesses how widely applicable these explanations are. The key finding is that wealth effects linked to favorable movements in the terms of trade and anticipated improvements in macroeconomic performance seem to have been more important empirically than explanations relying primarily on fiscal phenomena or distortions in intertemporal relative prices. Copyright The Author 2000. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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  • Peter Montiel, 2000. "What Drives Consumption Booms?," World Bank Economic Review, World Bank Group, vol. 14(3), pages 457-480, September.
  • Handle: RePEc:oup:wbecrv:v:14:y:2000:i:3:p:457-480
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    1. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
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    Cited by:

    1. Marco Terrones & Enrique G. Mendoza, 2008. "An Anatomy of Credit Booms; Evidence From Macro Aggregates and Micro Data," IMF Working Papers 08/226, International Monetary Fund.
    2. Fenech, Jean-Pierre & Yap, Ying Kai & Shafik, Salwa, 2014. "Can the Chinese banking system continue to grow without sacrificing loan quality?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 315-330.
    3. Marcus Kappler & Helmut Reisen & Moritz Schularick & Edouard Turkisch, 2013. "The Macroeconomic Effects of Large Exchange Rate Appreciations," Open Economies Review, Springer, vol. 24(3), pages 471-494, July.
    4. Emiliano Libman & Juan Antonio Montecino & Arslan Razmi, 2017. "Sustained investment surges," UMASS Amherst Economics Working Papers 2017-09, University of Massachusetts Amherst, Department of Economics.
    5. Marco Terrones & Enrique Mendoza, 2013. "Anatomy of credit booms and their demise," 2013 Meeting Papers 649, Society for Economic Dynamics.
    6. M S Mohanty & Gert Schnabel & Pablo Garcia-Luna, 2006. "Banks and aggregate credit: what is new?," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 11-39 Bank for International Settlements.

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