Lending Booms: Latin America and the World

Gourinchas, Pierre-Olivier; Valdés, Rodrigo; Landerretche, Óscar

doi:10.1353/eco.2001.0004

Cited by 111 publications

(91 citation statements)

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“…Our analysis also complements and extends the findings of Gourinchas, Valdes, and Landerretche (2001), who study lending boom episodes and show that in Latin America particularly, they make the economy considerably more vulnerable to financial crisis. A case study on the asymmetries of the tradable and non-tradable sectors in Mexico between 1995 and 1998, i.e.…”

Section: Related Literaturesupporting

confidence: 78%

How Strong is the Case for Dollarization in Central America? An Empirical Analysis of Business Cycles, Credit Market Imperfections and the Exchange Rate

Lindenberg

Westermann

2010

SSRN Journal

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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. Terms of use: Documents in AbstractIn this paper, we contrast two different views in the debate on official dollarization. The Mundell (1961) framework of optimal currency areas and a model on boom-bust cycles, by Schneider and Tornell (2004), who take account of credit market imperfections prevalent in middle income countries. We highlight that the role of the exchange rate is strikingly different in the two models. While in the Mundell framework the exchange rate is expected to smooth the business cycle, the other model predicts that the exchange rate plays an amplifying role. We empirically evaluate both models for eight highly dollarized Central American economies, and find that the main benefit of official dollarization derives from avoiding a mismatch between foreign currency liabilities and domestic revenues, as well as the boom-bust episodes that are likely to follow from it. Using a new method of Cubadda (1999Cubadda ( , 2007, we furthermore test for cyclical comovement and reject the hypothesis that the countries form an optimal currency area with the United States according to the Mundell definition.

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Section: Related Literaturesupporting

confidence: 78%

How Strong is the Case for Dollarization in Central America? An Empirical Analysis of Business Cycles, Credit Market Imperfections and the Exchange Rate

Lindenberg

Westermann

2010

SSRN Journal

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“…However, unlike earlier studies our focus is on a boom that has only recently ended and so it was important for us to use a method of analysis that takes account of the end-point problems of statistical lters. For this reason we employed the expanding Hodrick-Prescott lter used in Gourinchas, Valdes, and Landerretche (2001). This extends the sample over which the lter is applied by one year as each successive year in the sample is added such that for any point in time the trend is estimated on the basis of the data up to, but not beyond, the point in time in question.…”

Section: Bank Lendingmentioning

confidence: 99%

“…All of this happens without major changes in in ation". Owing to the greater prevalence of credit booms in emerging markets, there have been a much larger number of studies that have investigated credit booms in emerging market economies, such as Gourinchas, Valdes, and Landerretche (2001), Cottarelli, Giovanni, andVladkova-Hollar (2003) andInternational Monetary Fund (2004). They have generally con rmed similar, though more pronounced, patterns in emerging market credit boom episodes.…”

Section: Associated Business Cycle Phenomenamentioning

confidence: 99%

The global credit boom: Challenges for macroeconomics and policy

Hume

Sentance

2009

Journal of International Money and Finance

118

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The recent financial crisis has put the spotlight on the rapid rise in credit which preceded it. In this paper, we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed. We find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place. We show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that, while the 'global savings glut' may account for the cycle's initial phase, other factors -such as the conduct of monetary policy and perceptions of declining macroeconomic risk -were more important from the mid-2000s onwards. We conclude by identifying some of the challenges now facing macroeconomics and policy.

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“…The empirical literature on lending booms has generally focused on various aggregate measures of indebtedness such as various debt-to-GDP ratios (e.g. see Gourinchas et al (2001)), or the growth rate of the domestic credit to GDP ratio as in the literature on banking and currency crises (e.g. see Kaminsky and Reinhart (1999)).…”

Section: Introductionmentioning

confidence: 99%

When does leverage hurt productivity growth? A firm-level analysis

Coricelli

Driffield

Pal

et al. 2012

Journal of International Money and Finance

103

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Abstract:In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying "excessive" leverage. We find a similar non-monotonic relationship between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.

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Lending Booms: Latin America and the World

Cited by 111 publications

References 0 publications

How Strong is the Case for Dollarization in Central America? An Empirical Analysis of Business Cycles, Credit Market Imperfections and the Exchange Rate

How Strong is the Case for Dollarization in Central America? An Empirical Analysis of Business Cycles, Credit Market Imperfections and the Exchange Rate

The global credit boom: Challenges for macroeconomics and policy

When does leverage hurt productivity growth? A firm-level analysis

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