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This paper benefited greatly from discussions with Markus Rodlauer, James Daniel, Sonali Jain-Chandra, and we thank Lev Ratnovski, Nathan Porter and Kenji Moriyama as well as participants in seminars held at the People’s Bank of China and IMF for comments. Daniel Law provided excellent and invaluable research assistance.
Credit boom in New Zealand (1992) was due to a one-off credit expansion in 1988 from a low base. A boom in Hong Kong SAR (1983) should be seen in the context of its role as a global financial center. A boom in Finland (2003) was the result of economic recovery after large deleveraging in late 1990s. Credit booms in Indonesia (1990) and Switzerland (1985) eventually led to crises after futher credit expansion.
BIS data is used given its longer history going back to 1996. Total social financing, a shorter data series, offers qualitatively similar re suits.
Note that we analyzed the behavior of credit, independent of movements in GDP.
Cycles are identified as trough-to-lrough in the log level of credit series.
For example, the growth subtracting effect of credit restraint could have been partly offset by pro-rebalancing, on-budget fiscal stimulus as well as by the productivity gains from more decisive structure reforms.
IMF’s augmented fiscal data expand the perimeter of government to include local government financing vehicles and other off-budget activity (IMF, 2017).
An estimate for Chinese banks’ debt at risk—defined as borrowing by companies unable to generate sufficient earnings to cover debt interest payments —declined from about 15 percent of total loans at its peak in 2015 (IMF, 2016) to about 7 percent in 2017Q3, but it remains substantially higher than official estimates of NPLs and Special Mention Loans.
For more details, see IMF Policy Paper at http://www.imf.org/~/mediaAVebsites/IMF/imported-JM-text-pdf/external/np/pp/eng/2015/_082815a.ashx