An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data

By Marco E. Terrones, Enrique G. Mendoza. Social Science Research Network, 2008

703 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0094c787e9f830970fef04d19c1ffd8985ccbf7c

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Citations in the corpus

Exchange Rate Management and Crisis Susceptibility: A Reassessment (2014, neutral): “…under pure floats (Table 3, cols. (2), (5)).19 Although the control variables included in the estimation—based on earlier literature (for example, Mendoza and Terrones, 2008; Magud, Reinhart, and Vesperoni, 2011) —such as real GDP growth, net capital inflows, and foreign borrowing by the…”
What Happens During Recessions, Crunches, and Busts? (2008, positive): “…and defined as claims on the private sector by deposit money banks.4 These series were used in earlier crosscountry studies on credit dynamics (Mendoza and Terrones, 2008).5 The main sources for house prices are the OECD and the Bank for International Settlements (BIS).6 Equity price indices…”
International Credit Supply Shocks (2017, positive): “27This procedure is similar to the one used in the literature, e.g., Gourinchas et al. (2001), Mendoza and Terrones (2008).”
The global financial crisis: How similar? How different? How costly? (2010, background): “Recent research documents the main features of episodes of unusually sharp expansions in real credit that often ended in crisis (see Mendoza and Terrones, 2008).”
The History and Economics of Safe Assets (2016, neutral): “Over 50 years, the average country spends 27 years in a boom, and, on average, 12 of those years were spent in a boom that ended in a crisis (see also Desmirguc-Kant & Detragiache 1998, Mendoza & Terrones 2008).”
Global Waves of Debt: Causes and Consequences (2021, background): “Private debt accumulation episodes (credit booms) have been examined in Dell’Arricia et al. (2014, 2016); Elekdag and Wu (2013); IMF (2004); Jordà, Schularick, and Taylor (2011); Mendoza and Terrones (2008, 2012); Ohnsorge and Yu (2016); and Tornell and Westermann (2005).”
Overborrowing and systemic externalities in the business cycle (2009, background): “13See for example Garcia (2008) and Mendoza and Terrones (2008).”
Corporate debt, firm size and financial fragility in emerging markets (2019, positive): “More generally, this paper relates to the literature documenting the association between rapid credit growth and the building of corporate leverage and financial crises (Mendoza and Terrones, 2008, and Schularick and Taylor, 2012).”