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The collapse of credit booms: A competing risks analysis

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journal contribution
posted on 09.12.2019 by Vitor Castro, Rodrigo Martins
This paper analyses the collapse of credit booms by using a discrete-time competing risks duration model over a panel of 67 countries for the period 1975q1-2016q4 to disentangle the factors behind the length of benign and harmful credit booms. The results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. While more growth contributes to longer booms that are more likely to land softly, higher interest rates and central bank independence cut credit booms short but make hard landings more likely. Moreover, we found that the longer a credit boom lasts the more likely it is to end in a systemic banking crisis. Although both types of credit expansions have an increasing probability of ending, as they grow older - exhibiting positive duration dependence - hard landing credit booms have proven to be statistically longer.

History

School

  • Business and Economics

Department

  • Economics

Published in

Journal of Economic Studies

Publisher

Emerald

Version

AM (Accepted Manuscript)

Rights holder

© Emerald

Publisher statement

This paper was accepted for publication in the journal Journal of Economic Studies and the definitive published version is available at https://doi.org/10.1108/JES-04-2019-0196

Acceptance date

05/12/2019

Publication date

2020-06-09

ISSN

0144-3585

Language

en

Depositor

Dr Vitor Castro Deposit date: 5 December 2019

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