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Rapid credit growth and international credit: Challenges for Asia

  • Stefan Avdjiev
  • Robert McCauley
  • Patrick McGuire

Very low interest rates in major currencies have raised concerns over international credit flows to robustly growing economies in Asia. This paper examines three components of international credit and highlights several of the policy challenges that arise in constraining such credit. Our empirical findings suggest that international credit enables domestic credit booms in emerging markets. Furthermore, we demonstrate that higher levels of international credit on the eve of a crisis are associated with larger subsequent contractions in overall credit and real output. In Asia today, international credit generally is small in relation to overall credit - as was not the case before the Asian crisis. So even though dollar credit is growing very rapidly in some Asian economies, its contribution to overall credit growth has been modest outside the more dollarised economies of Asia.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 377.

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Length: 28 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:bis:biswps:377
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  1. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2010. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," Working Paper Series 1187, European Central Bank.
  2. Claudio Borio & Robert McCauley & Patrick McGuire, 2011. "Global credit and domestic credit booms," BIS Quarterly Review, Bank for International Settlements, September.
  3. Nicolas E. Magud & Esteban Vesperoni & Carmen Reinhart, 2012. "Capital Inflows, Exchange Rate Flexibility, and Credit Booms," IMF Working Papers 12/41, International Monetary Fund.
  4. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global Banks and International Shock Transmission: Evidence from the Crisis," NBER Working Papers 15974, National Bureau of Economic Research, Inc.
  5. Robert McCauley & Patrick McGuire & Goetz von Peter, 2010. "The architecture of global banking: from international to multinational?," BIS Quarterly Review, Bank for International Settlements, March.
  6. Robert N. McCauley, 2013. "Renminbi internationalisation and China’s financial development," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(2), pages 101-115, May.
  7. Enrique G. Mendoza & Marco E. Terrones, 2008. "An anatomy of credit booms: evidence from macro aggregates and micro data," International Finance Discussion Papers 936, Board of Governors of the Federal Reserve System (U.S.).
  8. Naohiko Baba & Ilhyock Shim, 2010. "Policy responses to dislocations in the FX swap market: the experience of Korea," BIS Quarterly Review, Bank for International Settlements, June.
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