nr 046 - Credit Booms in Emerging Market Economies: A Recipe for Banking Crises?

DNB Working Papers
Date 22 June 2005
This paper investigates whether credit booms are an important warning signal for banking crises in Asian and Latin American emerging market economies. Based on a signalling leading indicator model, the results suggest that credit booms are indeed a prelude for banking crises, especially in Latin America. To minimise a policymaker’s loss- function, it is optimal to take precautionary actions in the event credit growth rises substantially above its trend. JEL Codes: E44, G10, G21 Keywords: emerging markets, credit booms and banking crises