| 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. |