The Effects of different types of credit growth in developing countries in comparison to developed countries

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2019
Uçar, Ezgi
This thesis aims to identify the relationship between credit booms and banking crises. Credit is disaggregated into credit to non-financial corporations and credit to households and non-profit institutions serving households. The analysis covers 10 developing and 10 developed countries between 1994 and 2017. Method of Mendoza and Terrones (2008) is followed in identification of booms. Signal extraction analysis is employed to identify the most appropriate smoothing parameter and threshold coefficient. 1600 is used as smoothing parameter and 1 is used as threshold coefficient. It is revealed that 60 percent of banking crises were preceded by corporate credit booms whereas 70 percent of banking crises were preceded by household credit booms. 29 percent of corporate credit booms and 34 percent of household credit booms were resulted with banking crises. 35 percent of household credit booms in developing countries and 33 percent of household credit booms in developed countries were resulted with crises. 29 percent of corporate credit booms in developing countries and developed countries ended up with crises. Therefore, banking crises occur more frequently around household credit booms. The probability of ending up with a crisis is higher for longer and larger booms. All of credit booms continuing for more than 5 years ended up with crises in the analysis. The average duration of household credit booms is higher. Credit booms which ended up with crises were accompanied by high inflation, high interest rates and currency appreciation in developing countries and accompanied by high current account deficits, other investment levels and currency appreciation in developed countries.