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Credit and growth after financial crises

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  • Elod Takáts
  • Christian Upper

Abstract

We find that declining bank credit to the private sector will not necessarily constrain the economic recovery after output has bottomed out following a financial crisis. To obtain this result, we examine data from 39 financial crises, which - as the current one - were preceded by credit booms. In these crises the change in bank credit, either in real terms or relative to GDP, consistently did not correlate with growth during the first two years of the recovery. In the third and fourth year, the correlation becomes statistically significant but remains small in economic terms. The lack of association between deleveraging and the speed of recovery does not seem to arise due to limited data. In fact, our data shows that increasing competitiveness, via exchange rate depreciations, is statistically and economically significantly associated with faster recoveries. Our results contradict the current consensus that private sector deleveraging is necessarily harmful for growth.

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  • Elod Takáts & Christian Upper, 2013. "Credit and growth after financial crises," BIS Working Papers 416, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:416
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    References listed on IDEAS

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    Cited by:

    1. Martin Bijsterbosch & Tatjana Dahlhaus, 2015. "Key features and determinants of credit-less recoveries," Empirical Economics, Springer, vol. 49(4), pages 1245-1269, December.
    2. Cohen, Benjamin H. & Scatigna, Michela, 2016. "Banks and capital requirements: Channels of adjustment," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 56-69.
    3. Andrzej Rzoñca & Aleksander £aszek & Andrzej Halesiak, 2016. "On Economic Growth in Europe, or, The Uncertain Growth Prospects of Western Countries," mBank - CASE Seminar Proceedings 144, CASE-Center for Social and Economic Research.
    4. Piotr Ciżkowicz & Andrzej Rzońca, 2015. "Inflation Targeting and its Discontents: The Case of Poland," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 65(supplemen), pages 107-122, December.
    5. Dimelis, Sophia & Giotopoulos, Ioannis & Louri, Helen, 2015. "Can firms grow without credit?: evidence from the Euro Area, 2005-2011: a quantile panel analysis," LSE Research Online Documents on Economics 61157, London School of Economics and Political Science, LSE Library.
    6. Katalin Bodnár & Zsolt Kovalszky & Emese Hudák, 2014. "Recovery from crises and lending," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 13(4), pages 57-85.
    7. Daniel DAIANU, 2015. "A Central Bank’S Dilemmas In Highly Uncertain Times - A Romanian View," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 159-180, March.
    8. Muhammad Fadli Hanafi & Berly Martawardaya & Andi M. Alfian Parewangi, 2014. "The Contribution of Saving and Loan onn Economic Growth, The Case of Indonesia," EcoMod2014 7238, EcoMod.

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    Keywords

    creditless recovery; financial crises; deleveraging; household debt; corporate debt;

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