Rapid Credit Growth Rates in Transitional Economies with an Emphasis on Bulgaria
Econometric results indicate that dangerously rapid credit growth rates tend to precede banking crises. Therefore, detecting them and restraining them is of vital importance to policy makers. Nevertheless, previously used methods such as the signals approach,multivariate logit models and the Hodrick-Prescott filter are inapplicable to transitional economies given their short time series, unrepresentative previous banking crises and low frequency data. This paper presents a new way of detecting abnormal and potentially dangerous rapid credit growth rates by calculating expected credit growth rates after controlling for business cycle fluctuations and financial convergence - causes of rapid credit growth rates unlikely to lead to banking crises. The method is applied to transitional economies and a case study of Bulgaria is presented – the country with the highest abnormal credit growth rates in 2003 and 2004.
Franklin and Marshall College Archives, Undergraduate Honors Thesis 2006
- F&M Theses Collection