Credit-less Recoveries : Neither a Rare nor an Insurmountable Challenge
This paper examines why some countries experience economic recoveries without pick-up of bank credit (credit-less) and how different this recovery pattern is from the case where credit is increased as an economy recovers (credit-with). To answer th...
Main Authors: | , |
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Format: | Policy Research Working Paper |
Language: | English en_US |
Published: |
World Bank, Washington, DC
2013
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Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2013/05/17752510/credit-less-recoveries-neither-rare-nor-insurmountable-challenge http://hdl.handle.net/10986/15597 |
Summary: | This paper examines why some countries
experience economic recoveries without pick-up of bank
credit (credit-less) and how different this recovery pattern
is from the case where credit is increased as an economy
recovers (credit-with). To answer these questions, the paper
uses quarterly data covering 96 countries and identifies 272
recovery episodes. It finds that more than 25 percent of all
recoveries are credit-less and around 45 percent of all
credit-less recoveries occurred in 2009-10. It also finds
that output and investment growth tends to be lower in
credit-less events but, by eight quarters after the trough
date, the gap between credit-less and credit-with episodes
is mostly exhausted. Results of the probit estimations show
that the size of the downturn and the extent of external
adjustment are associated with the likelihood of credit-less
recoveries. Moreover, fiscal loosening tends to be related
to credit-less events while monetary easing and a
country's decision to seek an International Monetary
Fund-supported program reduce the probability of credit-less
recoveries. Finally, the model suggests that many countries
in the Europe and Central Asia region were likely to
experience credit-less recoveries following the global
financial crisis in 2008/09. What is more worrisome for them
is the fact that they are facing another negative external shock. |
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