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Default, Credit Growth, and Asset Prices
Author:
Mr. C. A. E. Goodhart null

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Miguel A. Segoviano
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Boris Hofmann null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 223
Language:
English
Publication Date:
01 Sep 2006
DOI:
https://doi.org/10.5089/9781451864830.001
ISBN:
9781451864830
ISSN:
1018-5941
Pages:
43
Keywords:
WP; asset price; price bubble; property price; bank lending; Probability of default; credit risk; systemic risk; macroeconomic shocks; stress testing; financial surveillance; price variable; property boom; asset gap variable; asset price dynamics; asset price shock; asset price fluctuation; asset price surge; equity price; assets decrease; short interest; bank PoDs; asset price gap; Asset prices; Bank credit; Land prices; Credit; Financial statistics; East Asia
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper uses a Merton-type estimate of the probability of default (PoD) for the main banks in a sample of Organization for Economic Cooperation and Development and middle-income countries as a proxy for the fragility of their banking systems. Based on theory and stylized facts, the paper explores a range of financial and real variables that explain such PoDs across time. We find property price fluctuations and bank credit to be important explanatory factors. There is two-way interaction between these variables and a clearer relationship when the variables are entered as a deviation from trend. The lag structure between such developments and PoDs is long and varies widely across countries. The paper assesses the implications of these findings for economic policy.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund