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TitleEconomic and political drivers of the duration of credit booms
Author(s)Castro, Vítor
Martins, Rodrigo
KeywordsCredit booms
Duration analysis
Political cycles
Central Bank independence
Issue date2018
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
JournalNIPE Working Paper
Abstract(s)This paper presents a new perspective on the study of credit booms by examining what determines their duration and by testing for relevant political features. The results from the estimation of a discrete-time duration model show that not only economic factors but also political dynamics play an important role in explaining the duration of credit booms. These are found to last longer when the economy is both growing faster and exhibits lower levels of liquidity in the banking system; but credit booms tend to be shorter when countries improve their current account position. Furthermore, their duration is affected by the electoral cycle as well as when centre parties are in office. Credit expansions that end in a banking crisis are also found to be statistically longer and their duration more sensitive to economic and political factors. Finally, we find strong evidence that Central Bank independence and the length of credit booms are inversely related.
TypeWorking paper
Publisher version
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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