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What drives the duration of credit booms?

journal contribution
posted on 23.06.2020 by Vitor Castro, Rodrigo Martins
This paper presents a new perspective on the study of credit booms by both examining what determines their duration and testing for relevant political features. The results from the estimation of a discrete-time duration model show that both the economic and the political environment influence the duration of credit booms. These events are found to last longer when: (i) the economy is growing faster; (ii) levels of liquidity in the banking system are lower; (iii) current account position deteriorates; (iv) centre parties are in office; and (v) with coalitions/minority governments. Evidence of a political cycle in the duration of credit booms is also detected. Additionally, this study shows that credit booms that end up in banking crises last longer but this effect can be offset by a higher degree of Central Bank independence. Hence, a monetary authority that is not influenced by political pressures is essential to prevent the unfolding of credit booms into banking crises.

History

School

  • Business and Economics

Department

  • Economics

Published in

International Journal of Finance and Economics

Publisher

Wiley

Version

AM (Accepted Manuscript)

Rights holder

© John Wiley & Sons, Ltd

Publisher statement

This is the peer reviewed version of the following article: CASTRO, V. and MARTINS, R., 2020. What drives the duration of credit booms? International Journal of Finance and Economics, doi:10.1002/ijfe.1862, which has been published in final form at https://doi.org/10.1002/ijfe.1862. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

Acceptance date

18/06/2020

Publication date

2020-07-22

Copyright date

2020

ISSN

1076-9307

eISSN

1099-1158

Language

en

Depositor

Dr Vitor Castro. Deposit date: 22 June 2020

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