Credit Booms, Demand Booms, and Euro Adoption

Schadler, Susan; Murgasova, Zuzana; Elkan, Rachel van

doi:10.1007/3-211-27259-3_13

Cited by 13 publications

(9 citation statements)

References 6 publications

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“…Their conclusion that many countries in the region exhibited credit-to-GDP ratios below the level that would be warranted by their economic fundamentals only serves to underscore the importance of exploring what can be said about the different paths followed by these countries in their approach towards their credit-to-GDP equilibrium levels. Schadler et al (2004) provides a useful approach to the question of measuring excessive credit growth, even though the paper deals mainly with the issue of whether rapid credit growth should affect plans for euro adoption in new Member States. Acknowledging the challenges posed by the transition, their approach is to draw on the experience of existing members of the euro area to draw some inferences about likely trends in the new Member States since "historical data from the CECs would not be relevant to predicting future credit developments" (Schadler et al, 2004:4).…”

Section: Overview Of the Empirical Literature On Lending Boomsmentioning

confidence: 99%

Is Lending in Central and Eastern Europe Developing Too Fast?

Boissay¹,

Calvo-Gonzalez²,

Koźluk³

2006

Financial Development, Integration and Stability

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Credit growth in Central and SouthEastern European countries has accelerated in recent years. While low starting levels of financial intermediation help to explain the speed of credit growth, the fast pace of credit growth raises concerns from a financial and macroeconomic stability perspective. Yet, there is only a limited empirical literature on the determinants of these episodes of fast credit growth. This paper provides an econometric analysis of the macroeconomic determinants of the growth of credit for Bulgaria, Croatia, Romania and the 8 transition countries that joined the EU in May 2004. In the absence of a generally-accepted way of determining what rate of credit growth may be deemed to be "excessive," the paper proposes a new approach to address this question. The contribution of this paper is to provide a measure of the excessiveness of credit growth while explicitly accounting for the catching up process in incomes associated with the transition from planned to market economies. To do so we model credit growth as a function of both macroeconomic fundamentals and the gap between the actual credit-to-GDP ratio and an equilibrium level. This simple model allows us to derive short-run credit elasticities as well as estimates of expected credit growth. We then compare the latter with actual credit growth, which provides us with a test to determine its "excessiveness." Due to data availability we undertake two sets of estimates of the short-run credit elasticities, based on a group of benchmark countries and on the countries of the region respectively. Although tentative, the conclusions that emerge suggest that credit growth in a number of countries in the region cannot be fully explained by their fast economic growth, declining interest rates or the catching-up in incomes. In particular, countries with fixed exchange rate regimes seem to have experienced credit growth well above what would have been expected given its main determinants. * The views expressed here are those of the authors and do not necessarily represent the views of the European Central Bank or the Eurosystem. The authors would like to thank Arnaud Mehl, Adalbert Winkler and participants at the IMF-National Bank of Romania conference on rapid growth of banking sector credit to the private sector held in Sinaia on 7-8 October 2005 for useful comments. The authors are also grateful to Evan Kraft, Croatian National Bank, for his assistance with Croatian data on loans in foreign currency and to Calin Arcalean for the dataset on loans and deposits in foreign currency.

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Section: Overview Of the Empirical Literature On Lending Boomsmentioning

confidence: 99%

Is Lending in Central and Eastern Europe Developing Too Fast?

Boissay¹,

Calvo-Gonzalez²,

Koźluk³

2006

Financial Development, Integration and Stability

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“…Schadler et al . () estimated a vector error correction model (VECM) for the Euro Area to find a statistically significant relationship between credit‐GDP ratio, real long term interest rate and real per capita income.…”

Section: Recent Literature and Model Specificationmentioning

confidence: 99%

“…There are many important strands in this literature, for example, existence of a credit channel in the transmission mechanism of the monetary policy (Angeloni et al ., ), role of credit as a non‐linear propagator of shocks (Balke, ; Gambacorta and Rossi, ), exploring how the dynamics of real and financial variables are affected by financial shocks using the dynamic stochastic general equilibrium (DSGE) model (Urban and Quadrini, ). Other studies in this literature have modelled consumer credit using the linear cointegration methods (Hartropp, ; De Nederlandsche Bank, ; Calza et al ., , ; Hofmann, ; Schadler et al ., ). None of the above studies have considered modelling credit demand using alternative measures of interest rate such as rate on personal loans (24 months), short‐term rate (3 years), medium‐term rate (10 years), short‐term consumer loan rate and the federal funds rate.…”

Section: Introductionmentioning

confidence: 97%

Is the US Consumer Credit Asymmetric?

Kumar

2015

Scottish J Political Eco

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We investigate the existence of any asymmetric effects in the US consumer credit. In doing so, we utilize the asymmetric cointegration methods proposed by Breitung (2001Breitung ( , 2002 and Enders and Siklos (2001). Furthermore, we tend to explore two additional dimensions in this literature. First, whether asymmetries (if any) are persistent over-time in the credit demand model. Second, whether the Great recession contributed to any asymmetric impacts on the credit demand. Our results revealed that the long-run relationship of consumer credit (credit, income, wealth and interest rate on personal loans) is asymmetric. While it is difficult to identify the direct sources of this asymmetric result, our intuition is that it is linked to the structural breaks in the rate of personal loans encountered in the early 1980s. Moreover, we find no strong evidence that much of the asymmetric impacts in consumer credit were experienced in the Great recession. Neither have we attained evidence that asymmetric impacts on credit demand are persistent over-time.Notes: Results are based on M-TAR model. Model specification used: C = f (Y, W, i). CV = critical value.

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“…Equity market turnover, equity market capitalization, and the quality of accounting standards also have negative relationships with volatility, though they are not statistically significant. A more heuristic examination of the bivariate relationship between a number of dimensions of governance (regulatory quality, government effectiveness, rule of law, 20 See Schadler et al (2004) for an analysis of costs and benefits of euro adoption for emerging Europe. 21 See Luengnaruemicthai and Schadler (2007) for an empirical model investigating the compression of spreads in the new members of the EU.…”

Section: Protective Measuresmentioning

confidence: 99%

Managing Large Capital Inflows: Taking Stock of International Experiences

Schadler¹

2010

Managing Capital Flows

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ADBI's discussion papers reflect initial ideas on a topic, and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each discussion paper (given in the citation below). Some discussion papers may develop into research papers or other forms of publication. Terms of use: Documents inThis discussion paper is part of the "Managing Capital Flows: Search for a Model" project. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. ADBI Discussion Paper 97 Susan Schadler AbstractTwo waves of large capital inflows to emerging markets in the past 20 years appear to present a paradox: inflows can provide opportunities for faster growth and technology transfer, but they can also feed overheating pressures and unleash forces that push recipients into crisis. This paper examines over 90 episodes of large inflows asking whether ill-effects were common or severe, how they were or were not avoided, and what circumstances resulted in the most successful episodes. The findings point to the crucial role of counter-cyclical fiscal policy during inflow episodes. Other protective steps-particularly in the area of financial sector supervision and development-can be equally important. JEL Classification: E44, F36, F41ADBI Discussion Paper 97 Susan Schadler

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Credit Booms, Demand Booms, and Euro Adoption

Cited by 13 publications

References 6 publications

Is Lending in Central and Eastern Europe Developing Too Fast?

Is Lending in Central and Eastern Europe Developing Too Fast?

Is the US Consumer Credit Asymmetric?

Managing Large Capital Inflows: Taking Stock of International Experiences

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