Credit growth, current account and financial depth

Ekinci, Mehmet Fatih; Erdem, Fatma Pınar; Kılınç, Zübeyir

doi:10.1080/00036846.2014.1002897

Cited by 23 publications

(23 citation statements)

References 20 publications

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“…Zhao et al (2017) used panel data covering 108 countries for the period 1990-2011 and found strong evidence to show that when a country is at a lower financial development level, further advancements of its financial system will boost exports. Ekinci et al (2015) pointed out that at the early stages of financial development, acceleration in the credit growth might cause a larger deterioration in the current account balance. Kauko (2014) provided extensive empirical literature overview and concluded that during a build-up phase, banks borrow internationally to finance domestic lending, boosting the current account deficit and causing a real estate bubble.…”

Section: Literature Overviewmentioning

confidence: 99%

Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach

Bošnjak

2019

South East European Journal of Economics and Business

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Following competing theories, the paper brings the determinants of the Serbian and Romanian current account dynamics with policy implications. The research sample consists of quarterly time series data over the period 2004q1-2017q2 and 2007q1-2017q4 for the cases of Serbian and the Romanian case, respectively. The estimates from the state space model with time-varying parameters (TVP) approach suggest that role of domestic demand is significant in both cases even though more prominent in case of Serbia. Marshall-Lerner conditions were fulfilled in case of Serbia while not in the Romanian case. The effects of money supply on the current account is found to be in line with the monetary approach in case of Romania while in the Serbian case the effect of an increase in the money supply is positive. Consequently, to resolve the issue of the current account deficit the research findings suggest the country-specific policy mix for each country.

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Section: Literature Overviewmentioning

confidence: 99%

Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach

Bošnjak

2019

South East European Journal of Economics and Business

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“…Despite the alleged association between current account deficits and domestic credit growth, the number of studies which directly refer to the relationship between current account deficits and credit growth seems to be very limited [6][7][8][9][10]. Those studies mainly employ some models to identify the determinants of current account deficits and domestic credit is included into these models as a proxy for financial variables.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Atoyan et al [8], IMF [9] and Ekinci et al [10] employ panel regression techniques for various groups of countries to investigate the impact of domestic credit growth on current account balances. The credit variable is used as the growth rate or as a share of GDP in those models for the current account to represent financial expansion.…”

Section: Literature Reviewmentioning

confidence: 99%

“…It is argued that these inflows have sustained a credit boom in Turkey, which in turn, has had an impact on imports; hence, widened the current account deficits further threatening the stability of the economy. 10 Trade deficits have been the driving force for current account deterioration in Turkey. The rapid expansion in credits reinforced the growth in domestic demand, and together with the strong Turkish lira, resulted in higher demand for imports.…”

Section: Current Account Deficits and Credit Expansion In Turkeymentioning

confidence: 99%

“…However, the number of studies dealing with the relationship between current account balances and domestic credit expansion seems to be very limited. In a group of studies, a credit variable appears in the models for the determinants of current account deficits [6][7][8][9][10]. In these models credit variable is used to represent the impact of financial factors on the current account, and the results generally suggest a deteriorating impact of credit expansion on current account balances.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does Credit Growth 'Cause'Current Account Deficits? Evidence from Turkey

Soydan¹

2016

Advances in Economics and Business

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The extent of current account deficits in the Turkish economy has reached alarming levels in the past few years. Beside other arguments, one line of debate has recently been put forward by the Central Bank of the Republic of Turkey; it is stated that credit expansion in the economy has been one of the leading reasons behind the large current account deficits. When the annual credit growth reached the level over 30 per cent in 2010, concerns regarding financial and macroeconomic stability were pronounced, and some policy measures were taken by the central bank in order to bring credit growth down to more 'sustainable' levels, as stated. This study aims to empirically analyse the relationship between current account balances and domestic credit dynamics in the case of Turkey. To this end, the paper employs the ARDL bounds testing methodology and investigates causality implications between domestic credit and external balance variables. The empirical findings of the study suggest Granger causality running from domestic credit growth to external balances.

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Accelerate or brake?—The connection of credit gaps and economic disequilibrium

Fazekas,

Póta,

Becsky‐Nagy

2024

Strategic Change

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Credit supply shocks significantly aggravate the impact of economic recessions. Understanding the underlying reasons why credit market shocks occur and detecting the market turbulences in time can give a decision support tool for the economic policy to intervene more efficiently on the market and to reduce the effect of economic downturns. The goal of the current article is to investigate the factors that signal possible credit shocks by analyzing the quarterly data of 17 European countries over the period 1995–2021. The focus of the article is on the credit given to the nonfinancial corporations. In our analysis, we have built on the credit gap methodology by determining the deviations of the lending activity from its trend, and then we have modeled these credit gaps using fundamental macroeconomic indicators, such as the balance of the current account, the ratio of short‐ and long‐term capital investments and government debt. Our conclusion is that in the presence of fundamental disequilibrium in the economy excessive lending creates positive credit gaps that increase the chance of negative credit market shocks. According to our new findings, the existing credit gap methodology can be improved by incorporating real economic factors; slowing long‐term capital investment and increasing the deficit of the current account signal the emergence of a credit gap. We found significant regional heterogeneity as in Southern European countries, and the credit gaps were more substantial. Among the investigated macroeconomic factors, the governmental indebtedness was especially high in these countries suggesting that countries with high public debt rates are more prone to develop credit gaps.

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Credit growth, current account and financial depth

Cited by 23 publications

References 20 publications

Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach

Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach

Does Credit Growth 'Cause'Current Account Deficits? Evidence from Turkey

Accelerate or brake?—The connection of credit gaps and economic disequilibrium

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