The collapse of credit booms: a competing risks analysis

Abstract

PurposeThis paper analyses the collapse of credit booms into soft landings or systemic banking crises.Design/methodology/approachA discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms.FindingsThe 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/valueThis 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.