Moore, Winston and Lewis-Bynoe, Denny and Howard, Stacia (2010): Credit Booms and Busts in the Caribbean.
Download (321kB) | Preview
Since 1970, private sector credit has grown quite rapidly in the Caribbean. More recently, between 2004 and 2006, total real credit in the Caribbean has risen by a cumulative 55.7 percent, or approximately 19 percent per annum. In some countries, the rate of expansion has even been stronger, which is of concern given the likely negative macroeconomic consequences of credit booms. This paper attempts to identify the factors that have led to credit booms and conversely busts in the Caribbean, employing annual data for 13 Caribbean countries covering the period 1970 to 2006 in the analysis. This study employs a panel count data regression approach. Three key groups of variables are considered: (1) macroeconomic developments; (2) macroeconomic policy, and (3) external shocks. The reported results suggest that macroeconomic developments were the main determinants of credit booms in the Caribbean, with low inflation, high growth in GDP per capita, investment booms as well as less developed financial systems leading to the emergence of credit booms and conversely for busts.
|Item Type:||MPRA Paper|
|Original Title:||Credit Booms and Busts in the Caribbean|
|Keywords:||Credit Booms, Credit Busts, Caribbean, Count Data Model|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers
|Depositing User:||Winston Moore|
|Date Deposited:||19. Mar 2010 22:41|
|Last Modified:||01. Jan 2016 10:00|
Backe, P. & Wojcik, C., (2008) Credit booms, monetary integration and the new neoclassical synthesis, Journal of Banking and Finance 32:458-470.
Blackburn, K. and Hung, V.T.Y. (1998) A theory of growth, financial development and trade, Economica 65: 107-124.
Borio, C., Lowe, P., (2002) Asset prices, financial and monetary stability: Exploring the nexus. BIS Working Papers Number 114, July.
Cameron, A.C. and Trivedi, P.K. (2005) Microeconometrics: methods and applications. Cambridge University Press, New York, NY.
Caprio, G., & Klingebiel, D., (1996) Bank insolvency: Bad luck, bad policy or bad banking. In: Annual Banking Conference on Developing Economies. World Bank, Washington, pp. 79-114.
Clarke, L. and Danns, D. (1997) Financial Evolution of the Caribbean Community, Caribbean Centre for Monetary Studies, UWI St. Augustine, Port of Spain.
Cottarelli, C., Dell’Ariccia, G., & Vladkova-Hollar, I., (2005) Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans, Journal of Banking and Finance 29:83-104.
Craigwell, R., Maxwell, C. and Moore, W. (2005) Financing preferences and firm growth, Savings and Development 29:1-20.
Easterly, W. and Kraay, A. (2000) Small states, small problems? Income, growth and volatility in small states, World Development 28: 2013-2027. 33
Eichengreen, B., & Mody, A., (2000) Lending booms, reserves and the sustainability of short-term debt: Inferences from the pricing of syndicated bank loans, Journal of Development Economics, 63:5-44
Gourinchas, P.O., Valdes, R., Landerretche, O., (2001) Lending booms: Latin America and the World. NBER Working Paper 8249.
Gopinath, G., (2004) Lending booms, sharp reversals and real exchange rate dynamics, Journal of International Economics 62: 1-23
Grosse, R. & Goldberg, L.G. (1996) What Starts Inflation: Evidence from the OECD Countries, Journal of Economics and Business, 48:285-298.
King, R., & Levine, R., (1993) Finance and growth: Schumpeter might be right, Quarter Journal of Economics 108: 717-737.
Kraft, E., (1999) Croatia’s Second Banking Crisis, in: Enterprises in Transition, Faculty of Economics, Split, Croatia
Kraft, E., Jankov L., (2004) Does speed kill? Lending booms and their consequences in Croatia. Journal of Banking and Finance 29: 105-121.
Levine, R. (1997). Financial development and economic growth: views and agenda,’ Journal of Economic Literature 35: 688-726.
Love, I. (2003) Financial development and financing constraints: international evidence from the structural investment model 16: 765-791.
Mendoza, E.G. and Terrones, M.E. (2008) An anatomy of credit booms: evidence from macro aggregates and micro data, IMF Working Paper WP/08/226, Washington, D.C. 34
Nordhaus, W.D. (1975) The political business cycle, Review of Economic Studies 42: 169-190.
Rousseau, P., & Wachtel, P., (2002) Inflation threshold and the finance-growth nexus. Journal of International Money and Finance 21: 777-793.
Santos-Paulino, A. and Thrilwall, A.P. (2004) The impact of trade liberalisation on exports, imports and the balance of payments of developing countries, Economic Journal 114: F50-F72.