SEACEN-ASB Seminar on Credit Allocation and Macro Fluctuations

Venue :Online Seminars
Host Name :Online Webinar
Date From :25 Nov 2021
Date To :25 Nov 2021


Theory predicts that the sectoral allocation of credit matters for distinguishing between “good” and “bad” credit booms. We test the prediction that lending to households and the non-tradable sector, relative to the tradable sector, contributes to macroeconomic boom-bust cycles by

  1. fuelling unsustainable demand booms,
  2. increasing financial fragility, and
  3. misallocating resources across sectors.

We show that credit to non-tradable sectors, including construction and real estate, is associated with a boom-bust pattern in output, similar to household credit booms. Such lending booms also predict elevated financial crisis risk and productivity slowdowns. In contrast, tradable-sector credit expansions are followed by stable output and productivity growth without a higher risk of a financial crisis. Our findings highlight that what credit is used for is important for understanding macro-financial linkages.

Join us for a talk by Karsten Mueller (NUS) on the the relationship between credit expansions, macroeconomic fluctuations, and financial crises using a novel database on the sectoral distribution of private credit for 116 countries starting in 1940.