Equilibrium Credit : The Reference Point for Macroprudential Supervisors
Equilibrium credit is an important concept because it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. It uses two stages to study changes in the demand for credit due to varying l...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/02/17280441/equilibrium-credit-reference-point-macroprudential-supervisors http://hdl.handle.net/10986/13151 |
| Summary: | Equilibrium credit is an important
concept because it helps identify excessive credit
provision. This paper proposes a two-stage approach to
determine equilibrium credit. It uses two stages to study
changes in the demand for credit due to varying levels of
economic, financial and institutional development of a
country. Using a panel of high and middle-income countries
over the period 1980-2010, this paper provides empirical
evidence that the credit-to-GDP ratio is inappropriate to
measure equilibrium credit. The reason for this is that such
an approach ignores heterogeneity in the parameters that
determine equilibrium credit across countries due to
different stages of economic development. The main drivers
of this heterogeneity are financial depth, access to
financial services, use of capital markets, efficiency and
funding of domestic banks, central bank independence, the
degree of supervisory integration, and experience of a
financial crisis. Countries in Europe and Central Asia show
a slower adjustment of credit to its long-run equilibrium
compared with other regions of the world. |
|---|