Private-Sector Credit in Central & Eastern Europe: New (Over) Shooting Stars?

Abstract

This paper analyzes the equilibrium level of private credit to GDP in 11 Central and Eastern European countries in order to see whether the high credit growth recently observed in some of these countries led to above equilibrium private creditto-GDP levels. We use estimation results obtained for a panel of small open OECD economies (out-of-sample sample) to derive the equilibrium credit level for a panel of transition economies (in-sample panel). We opt for this (out-of-sample) approach because the coef cient estimates for transition economies are fairly unstable. We show that there is a large amount of uncertainty to determine the equilibrium level of private credit. Yet our results indicate that a number of countries are very close or even above the estimated equilibrium levels, whereas others are still well below the equilibrium level.

Monetary policy and financial development in Africa: Do governance mechanisms matter?

“…Cotarelli et al (2005) found that domestic access to credit is statistically significant and positively influenced by GDPPC. This result is confirmed by the findings of Égert, Backé and Zumer (2006) when they found that there is a positive relationship between domestic access to credit and GDPPC. Similarly, Calza et al (2001) show that there is a long-run positive relationship between domestic credit and GDPPC.…”

The effect of nominal exchange rate volatility on real macroeconomic performance in the CEE countries

“…The credit boom in the CEE countries during the last decade has attracted the attention of several researches which aimed to assess whether the increase of credit was excessive (above equilibrium) or a natural process compatible with the catching up process of these economies with the euro area (Cottarelli et al, 2005;Egert et al, 2006;Kiss et al, 2006;Backé et al 2006;Zdzienicka, 2009). The findings of this stream of literature tended to favour the hypothesis of excessive credit growth, at least in recent years and in some CEE countries.…”

“…Following a common approach in the literature the credit equilibrium level is sample approach, in which the implied elasticities of long determinants (GDP per capita and real interest rate 9 ) are estimated for the Western European countries, which represent the natural benchmark for the CEEs Cottarelli et al, 2005, Schadler et al, 2005, Egert et al, 2006Kiss et al, 2006;. In detail, to estimate the long-term equilibrium, we apply the pooled mean group (PMG) estimator on the panel of 12 Western European countries over the 2008.…”

Credit Growth, Bank Soundness and Financial Fragility

“…The majority of the studies in this area have primarily dealt with developed markets, such as the US banks (Contessi and Francis 2009), transition (Coricelli and Masten 2004) and EU countries (Cottarelli et al 2005;Egert et al 2006;Maechler et al 2007) and to a lesser extent, the Latin American (Barajas et al 2005;Breuer et al 2009) banking sector. Using quarterly (and monthly) data on banks from eight Latin American countries for 1992-2001, Barajas and Steiner (2002) find the evolution of deposits to be a key factor explaining credit expansion.…”