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An anatomy of credit booms: evidence from macro aggregates and micro data

Author Info

Listed author(s):
  • Enrique G. Mendoza
  • Marco E. Terrones

Abstract

This paper proposes a methodology for measuring credit booms and uses it to identify credit booms in emerging and industrial economies over the past four decades. In addition, we use event study methods to identify the key empirical regularities of credit booms in macroeconomic aggregates and micro-level data. Macro data show a systematic relationship between credit booms and economic expansions, rising asset prices, real appreciations, widening external deficits and managed exchange rates. Micro data show a strong association between credit booms and firm-level measures of leverage, firm values, and external financing, and bank-level indicators of banking fragility. Credit booms in industrial and emerging economies show three major differences: (1) credit booms and the macro and micro fluctuations associated with them are larger in emerging economies, particularly in the nontradables sector; (2) not all credit booms end in financial crises, but most emerging markets crises were associated with credit booms; and (3) credit booms in emerging economies are often preceded by large capital inflows but not by financial reforms or productivity gains.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 936.

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Date of creation: 2008
Handle: RePEc:fip:fedgif:936
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Keywords: Business cycles ; Emerging markets ; Economic development;

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Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
  • F3 - International Economics - - International Finance
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. More Finance, More Growth? More Finance, More Crises?
    by Gerald Epstein in Triple Crisis on 2014-06-19 12:00:19
  2. More Finance, More Growth? More Finance, More Crises?
    by Yves Smith in Naked Capitalism on 2014-06-20 08:38:59
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