Credit Reversals

Vazquez, Francisco (2020): Credit Reversals.

Abstract

This paper studies episodes in which aggregate bank credit contracts alongside expanding economic activity—credit reversals. Using data for 179 countries during 1960‒2017, the paper finds that reversals are a relatively common phenomenon--on average, they occur every five years. By comparison, banking crises take place every eight years on average. Credit reversals and banking crises also appear related to each other: reversals become more likely in the aftermath of banking crises, while the likelihood of crises drops following reversals. Reversals are shown to be very costly in terms of foregone economic activity—about two-thirds of the costs of banking crises, after taking into account their relative frequencies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit reversals, credit booms, credit crunches, credit cycles, banking crises, financial stability
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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