Make It or Break It? Assessing Credit Booms in Developing Countries

Make It or Break It? Assessing Credit Booms in Developing Countries

Author: 
Daniela Marchettini
Publisher: 
Oxford University Press
Date published: 
2018
Record type: 
Region: 
Responsibility: 
Maino, Rodolfo, jt. author
Journal Title: 
Journal of African Economies
Source: 
Journal of African Economies, Vol. 27, No. 5, November 2018 pp. 515-537
Abstract: 

In this paper, we argue that the assessment of systemic risk associated with rapid credit growth should be conducted with different tools at different stages of financial development. In particular, using a signal detection framework, we show that, when the level of financial development is low, the most used leading indicator of banking crisis, namely the credit-to-GDP gap, has poor predictive performance, as it is unable to disentangle episodes of financial deepening from bubble-like credit booms. On the contrary, a new class of indicators, comparing credit levels to structural benchmarks, has good capacity to correctly predict financial crises in economies in the early stages of financial development.

Language: 

CITATION: Daniela Marchettini. Make It or Break It? Assessing Credit Booms in Developing Countries . : Oxford University Press , 2018. Journal of African Economies, Vol. 27, No. 5, November 2018 pp. 515-537 - Available at: https://library.au.int/make-it-or-break-it-assessing-credit-booms-developing-countries