Duration Dependence and Change-Points in the Likelihood of Credit Booms Ending
Whether the likelihood of a credit boom ending is dependent on its age or not, or whether the respective behavior is smooth or bumpy are important issues to which the economic literature has not given attention yet. This paper tries to fill that ga...
| 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/2013/06/17831597/duration-dependence-change-points-likelihood-credit-booms-ending http://hdl.handle.net/10986/15836 |
| Summary: | Whether the likelihood of a credit boom
ending is dependent on its age or not, or whether the
respective behavior is smooth or bumpy are important issues
to which the economic literature has not given attention
yet. This paper tries to fill that gap, exploring those
issues with a proper duration analysis. Credit booms are
identified considering two criteria well established in the
literature: (i) the Mendoza-Terrones criteria and (ii) and
the Gourinchas-Valdes-Landarretche criteria. A
continuous-time Weibull duration model is employed over a
group of 71 countries for the period 1975q1-2010q4 to
investigate whether credit booms are duration dependent or
not. The findings show that the likelihood of credit booms
ending increases over their duration and that these events
have become longer over the past decades. In addition, the
paper extends the baseline Weibull duration model in order
to allow for change-points in the duration dependence
parameter. The empirical findings support the presence of a
change-point: increasing positive duration dependence is
observed in booms that last less than eight to ten quarters,
but it becomes decreasing or even irrelevant for longer
events. Analogous results are found for those credit boom
episodes that are followed by systemic banking crisis (bad
credit booms). The findings also show that credit booms are,
on average, longer in industrial than in developing countries. |
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