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Credit Booms in Emerging Market Economies: A Recipe for Banking Crises?

Author

Listed:
  • Daniel Ottens
  • Edwin Lambregts
  • Steven Poelhekke

Abstract

This paper investigates whether credit booms are an important warning signal for banking crises in Asian and Latin American emerging market economies. Based on a signalling leading indicator model, the results suggest that credit booms are indeed a prelude for banking crises, especially in Latin America. To minimise a policymaker's loss- function, it is optimal to take precautionary actions in the event credit growth rises substantially above its trend.

Suggested Citation

  • Daniel Ottens & Edwin Lambregts & Steven Poelhekke, 2005. "Credit Booms in Emerging Market Economies: A Recipe for Banking Crises?," DNB Working Papers 046, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:046
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%2046_tcm46-146703.pdf
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    References listed on IDEAS

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    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    2. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    3. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 47-100, January.
    4. Cottarelli, Carlo & Dell'Ariccia, Giovanni & Vladkova-Hollar, Ivanna, 2005. "Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 83-104, January.
    5. Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 111-155.
    6. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," World Bank Economic Review, World Bank Group, vol. 14(2), pages 287-307, May.
    7. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
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    Citations

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    Cited by:

    1. Shen, Chung-Hua & Lee, Yen Hsien & Wu, Meng-Wen & Guo, Na, 2016. "Does housing boom lead to credit boom or is it the other way around? The case of China," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 349-367.
    2. 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.
    3. Enrique G. Mendoza & Marco E. Terrones, 2014. "An Anatomy of Credit Booms and their Demise," Central Banking, Analysis, and Economic Policies Book Series,in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.), Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 6, pages 165-204 Central Bank of Chile.
    4. 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.
    5. repec:jfr:rwe111:v:6:y:2015:i:3:p:14-22 is not listed on IDEAS
    6. Lahura, Erick & Chang, Giancarlo & Salazar, Oscar, 2013. "Identificación de Episodios de Auge Crediticio: Una propuesta Metodológica con Fundamentos Económicos," Working Papers 2013-011, Banco Central de Reserva del Perú.
    7. Julián Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?: Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom-Bust Cycles," IDB Publications (Working Papers) 3971, Inter-American Development Bank.
    8. Marco Terrones & Enrique Mendoza, 2013. "Anatomy of credit booms and their demise," 2013 Meeting Papers 649, Society for Economic Dynamics.
    9. Julián Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?: Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom-Bust Cycles," IDB Publications (Working Papers) 3971, Inter-American Development Bank.
    10. Burcu Aydin, 2008. "Banking Structure and Credit Growth in Central and Eastern European Countries," IMF Working Papers 08/215, International Monetary Fund.

    More about this item

    Keywords

    emerging markets; credit booms and banking crises;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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