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Tatjana Dahlhaus

22 June 2011
This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After building a dataset and documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis confirms earlier findings that credit-less recoveries are not at all rare events. Moreover, our analysis shows that the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and financial stress, in particular if private sector indebtedness is high and the country is reliant on foreign capital inflows. Finally, we find that the predicted probability of a credit-less recovery in central and eastern European EU Member States during the coming years varies across countries, but is relatively high in the Baltic States.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
C25 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Discrete Regression and Qualitative Choice Models, Discrete Regressors, Proportions
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G01 : Financial Economics→General→Financial Crises