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Purpose: This paper analyses the collapse of credit booms into soft landings or systemic banking crises. Design/methodology/approach: A discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms. Findings: The results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. Moreover, both types of credit expansions display positive duration dependence, i.e. both are more likely to end as they grow older, but hard landing credit booms have proven to be longer than those that land softly. Originality/value: This paper contributes to our understanding of what affects the length of credit booms and why some end up creating havoc and others do not. In particular, it calls the attention to the important role that Central Bank independence plays regarding credit booms length and outcome. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this paper is to study the implications of borrowing constraints characterizing the informal sector for macroeconomic volatility. Design/methodology/approach – To this end, the author develops a simple dynamic stochastic general equilibrium model wherein registered activity not only is the basis to determine tax liabilities, but also serves as collateral for securing debts. Such a framework allows for computational experiments to analyze the effect of informality on aggregate fluctuations. Findings – The experiments show that the credit-constrained informal sector does exert a significant influence on the cyclical volatility of consumption and investment. Originality/value – There are not many studies addressing the implications of informal economic activities for macroeconomic fluctuations. This paper contributes to the literature by developing a theoretical model showing that credit constraints characterizing these activities might play a non-negligible role in explaining the cyclical volatility of some important aggregates. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to investigate the mutual dependence between housing prices and housing credit in Estonia, a country that experienced rapid debt accumulation during the 2000s and big swings in house prices during that period. Design/methodology/approach: The authors use Bayesian econometric methods on data spanning 2000–2015. Findings: The estimations show the interdependence between house prices and housing credit. More importantly, negative housing credit innovations had a stronger effect on house prices than positive ones. Originality/value: The asymmetry in the linkage between housing credit and house prices highlights important policy implications, in that if central banks increase capital buffers during good times, they can release credit conditions during hard times to alleviate the negative spillover into house prices and the real economy. [ABSTRACT FROM AUTHOR]

Purpose: Evidence suggests that unorganized manufacturing units are extremely credit-starved. The purpose of this paper is to study the effect of such credit unavailability for small firms, and to see if it has altered the erstwhile production organization in a way which has led to the withdrawal of the small firms from both input and output market, leading to increased production outsourcing between the formal and informal firms. Design/methodology/approach: Based on data collected from two textile clusters in Maharashtra, India, the study shows that credit unavailability has led small firms to increasingly work for bigger firms as outsourced units. The paper uses a measure of technology and productivity to undertake logistic regression and sub-sample regressions to confirm production reorganization resulting from credit unavailability. This would provide additional insights for standard measures of intra-country intra-industry trade Findings: The exclusion of the unorganized production units from the formal lending process has, over the years, led to a reorganization of the existing production structure, whereby the small firms are forced to work for bigger formal firms on piece-rate basis. To circumvent their credit issues, the small unorganized sector firms have increasingly started to work for bigger firms as outsourced units. Originality/value: This is an original research work. The paper fulfils the identified need of addressing how the plaguing social issue of financial exclusion of unorganized firms has led to production reorganization. [ABSTRACT FROM AUTHOR]

Purpose The Great Leveraging was an episode of rapid credit growth and booming housing markets leading up to the global financial crisis. It is important to identify the key drivers of the Great Leveraging and, to this end, the purpose of this paper is to model the relationship between domestic credit and net foreign liabilities in the EU countries most affected by the crisis.Design/methodology/approach The analyses show that domestic credit and net foreign liabilities were cointegrated one-to-one for Greece, Italy, Portugal and Spain, while there was no cointegration for Ireland. Estimation of vector error correction models (VECMs) shows that the adjustment to deviations from the cointegrating relationship took place through changes in domestic credit for Greece and Italy, while the adjustment was bidirectional for Spain and maybe also for Portugal.Findings These results suggest that external factors in the form of foreign capital inflows were important drivers of the pre-crisis leveraging in the southern crisis countries, although to varying degrees across the countries.Originality/value Key novelties include the use of stock variables instead of flow variables and the estimation of VECMs for the countries individually instead of in a panel. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this paper is to present a theoretical model and empirically verifies the transmission of monetary policy through the credit channel in Brazil. The study verifies if the monetary policy, the economic activity and the maturity of the inflation targeting regime affect the supply of credit. Design/methodology/approach – The paper offers a review of the literature concerning inflation targeting credibility and the transmission mechanism of monetary policy through the credit channel, it develops a theoretical model based on Bernanke and Blinder and Ferreira and it seeks empirical evidence for the Brazilian economy using ordinary least squares, generalized method of moments and vector autoregressive. Findings – The estimates indicate that the supply of credit is stimulated when the economy heats up, when the monetary authority reduces the interest rate and when the credibility increases. The evidence also indicate that the supply of credit is affected by the variables of the model, economic activity and employment are affected by monetary policy and the supply of credit exerts influence on both employment and output gap. Research limitations/implications – An important implication of this study is that, in inflation targeting emerging economies, such as that of Brazil, following a committed monetary policy to price stability which increases the credibility of the regime of inflation targeting and promoting macroeconomic stability represents a good strategy for improving the volume of lending to the private sector, thus stimulating economic activity and employment. What the findings do indicate is that developing credibility is crucial for emerging economies that are trying to grow, but with inflation being kept under control. Originality/value – The paper presents the following theoretical and empirical contributions: the model incorporates the effect that the credibility of the inflation targeting regime has on the supply of credit and, the econometric approach provides evidence that the monetary policy, the economic activity and the process of anchoring of inflation expectations affect the supply of credit in Brazil. Moreover, the paper finds evidence that the credit channel acts as a transmission mechanism of monetary policy to the economy. [ABSTRACT FROM AUTHOR]

Purpose -- The purpose of this paper is to analyze the influence of prudential regulation and monetary policies on the supply of credit as well as the influence of such policies on the aggregate investment through the credit channel in Brazil. Design/methodology/approach -- The empirical analysis is based on estimates through ordinary least squares (OLS), generalized method of moments (GMM), system of equations through GMM (system-GMM), and impulse response functions through vector autoregressive (VAR). Findings -- The results suggest that monetary policies and prudential regulation affect aggregate investment through the bank lending channel. With regards to elasticities, the findings indicate that the credit is very sensitive to variations in economic activity and, in turn, prudential regulation presents a stronger influence on credit than the basic interest rate and the reserve requirement rate. Moreover, the estimates suggest that aggregate investment is more sensitive to entrepreneurs' expectations and credit supply. Practical implications -- Aiming to reduce systemic risk in the economy, capital requirements may be increased in order to induce banks to a lower risk exposure by reducing the supply of loans. However, while this instrument strengthens the banking system, it can also lead the banking system to become less sensitive to monetary policy shocks, and also discourage aggregate demand through the influence that the credit exerts on investments. As a consequence, prudential regulation is an important tool because it acts on the balance between economic growth and low risk exposure of banks. Originality/value -- The paper provides useful insights to academicians, economists and policymakers who are interested in understanding the effects of monetary policies and prudential regulation on aggregate investment through the credit channel in an emerging economy under inflation targeting. Moreover, the paper develops a theoretical model in order to show the influence of different monetary policies, as well as the influence of prudential regulation on the supply of credit. [ABSTRACT FROM AUTHOR]

Purpose -- The purpose of this paper is to examine loan commitments and lending patterns of community banks. The authors also test for shifts in these relationships in the period unwinding the subprime crisis. Design/methodology/approach -- Standard panel fixed-effect models as well as hierarchical (mixed) regression models are estimated given that banks operating in a specific geographic market may vary systematically with differences in firm-level characteristics. Hierarchical (mixed) regression models can control for within-counties and within-banks similarities. The authors also employ pooled estimations with clustered standard errors at the bank level as robustness check. Findings -- The empirical results show that the use of loan commitments is generally associated with moderate increase in profitability and higher insolvency risk. However, during the recent financial crisis, the use of loan commitments becomes safer. The use of loan commitments is more risky for community banks that concentrate more on loans that focus on real estate, while it is safer for community banks with higher equity. In regards to the performance of community banks' balance sheet loan activities, a more concentrated loan portfolio results in lower return and higher insolvency risks. High loan growth generates higher return and higher risks. Originality/value -- Prior to the 2008 credit meltdown, community banks significantly increased their issuance of off-balance sheet loan commitments. While the ratio of loan commitments to total loans has come down in recent years it continues to exceed the levels reached in the 1990s. This evolution has, however resulted in little research regarding its implications on community bank profitability and risk. Paper type Research paper [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this study is to empirically test the hypothesis about substitution of trade and bank credits during the crisis period among 1,570 firms from 16 developing countries. Design/methodology/approach: The study examines the dynamics of trade credits, following previous studies with special emphasis on the research by Love et al. (2007). The foregoing methodology was expanded by taking into account the effects of the interdependence between firms by means of spatial panel model. Findings: The study reveals that, taking into account spatial effects, there is a positive relationship between bank and trade credits, that is, they behave as complements for each other. Significant positive spatial correlation, obtained for the firms within the same country or cluster, points to the presence of externalities inside these groups. The latter implies that neighboring firms demonstrate similar unidirectional dynamics of trade credits. Originality/value: Results of this study may create a basis for policy implementation in the sphere of corporate lending, and allow to build appropriate supporting policies during crisis period. [ABSTRACT FROM AUTHOR]