Credit composition and the severity of post-crisis recessions

Dirk Bezemer, Lu Zhang

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13 Citaten (Scopus)
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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.

Originele taal-2English
Pagina's (van-tot)52-66
Aantal pagina's15
TijdschriftJournal of Financial Stability
Volume42
DOI's
StatusPublished - jun.-2019
EvenementConference on Financial Services Indices, Liquidity and Economic Activity - London
Duur: 23-mei-201724-mei-2017

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