Anatomy of Credit-Less Recoveries
The recovery from the global crisis that erupted in 2007 shows that the decoupling between real and financial variables during the business cycle can lead to negative and long-lasting consequences for the economy. A key feature of the past global c...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/991851528243815478/Anatomy-of-credit-less-recoveries http://hdl.handle.net/10986/29894 |
| Summary: | The recovery from the global crisis that
erupted in 2007 shows that the decoupling between real and
financial variables during the business cycle can lead to
negative and long-lasting consequences for the economy. A
key feature of the past global crisis in many countries is
that the recovery in aggregate output has not been
accompanied by a contemporary pick-up in lending flows to
the private sector, rendering the recovery credit-less. This
paper uses data on output and credit to study the relative
roles of demand and supply drivers of credit growth during
economic recoveries on a sample of advanced and emerging
countries between 1980 and 2014. Using a simple endowment
economy model, the paper shows that credit-less recoveries
are correlated with liquidity shocks in real and financial
markets and with the pace of private sector deleveraging.
The empirical analysis shows that during these episodes
demand-side frictions played a relatively larger role in
predicting the occurrence of the episodes, reflecting weak
demand for liquidity by the private sector in the aftermath
of the crisis. |
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