International Credit Cycles: A Regional Perspective

Credit/GDP ratio is used to construct stylized credit cycles at global and regional levels over 1980–2010. The analysis encompasses 94 countries in 7 regions and is based on vector auto-regression (VAR) methodology. It is found that the average duration of the regional credit cycles is between 12 and 15 years and there is “a ceiling” and “a floor” curbing the amplitude of these cycles. They are also largely interconnected, with the US credit cycle playing a pivotal role for the rest of the regions and being insulated from any external influence meanwhile. The relationship between credit cycles and the intensity of banking crises is also discussed. It appears that fewer banking crises occur in the regions exerting predominant influence over their counterparts and having a higher number of total connections.