Credit composition and the severity of post-crisis recessions

Dirk Bezemer, Lu Zhang

Research output: Contribution to journalArticleAcademicpeer-review

6 Citations (Scopus)

Abstract

Unsustainable credit growth leads to financial stability risks, with real repercussions. But what is unsustainable? In this paper we suggest that the balance between the growth in mortgage credit and business credit is a key factor in post-crisis macroeconomic vulnerability. The sample-average rise in credit composition (the share of household mortgage credit in total credit) in 51 economies in the five years before the 2007 global financial crisis is associated with a 2.1% average growth loss in the five years after the crisis. This finding is robust for total-credit growth and for post-crisis fiscal and monetary policy responses. Delving into the channels, we find that larger changes in credit composition before the crisis are linked to less efficient capital reallocation and larger investment cutbacks afterwards. (C) 2019 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)52-66
Number of pages15
JournalJournal of Financial Stability
Volume42
DOIs
Publication statusPublished - Jun-2019
EventConference on Financial Services Indices, Liquidity and Economic Activity - London
Duration: 23-May-201724-May-2017

Keywords

  • Change in credit composition
  • Mortgages
  • Leverage
  • Crisis
  • Recession
  • HOUSEHOLD DEBT
  • BUSINESS CYCLES
  • GROWTH
  • VULNERABILITY
  • WEALTH
  • BOOMS

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