Calderon, CesarKubota, Megumi2013-01-042013-01-042012-11https://hdl.handle.net/10986/12115The main goal of the paper is to examine whether surges in private capital inflows lead to credit booms. The authors built a quarterly database on gross capital inflows, credit to the private sector, and other macro-financial indicators for a sample of 71 countries from 1975q1 to 2010q4. Identifying credit booms is not trivial: they use different criteria implemented in the literature. The estimates suggest that: (i) Surges in gross private capital inflows are overall good predictors of credit booms. (ii) The likelihood of credit booms is higher if the surges in foreign flows are driven by private other investment inflows and, to a lesser extent, portfolio investment inflows. (iii) Surges in gross inflows are also good predictors of credit booms that end up in a financial crisis -- "bad" credit booms. This finding holds even after controlling for the appreciation of the local currency and the build-up of leverage. (iv) Bad credit booms are more likely to occur when surges are driven by other investment inflows. At best, foreign direct investment inflow-driven surges help mitigate the incidence of this type of credit boom. (v) The predictive ability of gross other investment inflows is primarily driven by bank inflows. (vi) Consistent with the literature, the analysis finds that the build-up of leverage and the real overvaluation of the currency help predict credit booms that are followed by a systemic crisis. Controlling for these factors, capital flows are still a significant predictor of credit booms.en-USCC BY 3.0 IGOACCOUNTINGADVANCED ECONOMIESAMOUNT OF CREDITANNUAL GROWTHASSET PRICEASSET PRICE BOOMSASSET PRICESBALANCE OF PAYMENTSBANK DEPOSITSBANK LENDINGBANK LIQUIDATIONSBANK LOANSBANK RESTRUCTURINGBANK RUNSBANKING CRISISBANKING SECTORBANKING SYSTEMBILATERAL TRADEBOARDS OF DIRECTORSBONDSBUSINESS CYCLEBUSINESS CYCLESCAPITAL FLOWCAPITAL FLOWSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL MARKETSCAPITAL MOBILITYCENTRAL BANKCENTRAL BANKSCLAIMCOMPETITIVENESSCONSUMER PRICE INDEXCONSUMPTION SMOOTHINGCONTAINING SYSTEMIC RISKSCONTROL VARIABLESCREDIT BOOMCREDIT BOOMSCREDIT GROWTHCREDIT MARKETSCURRENCY CRISISCURRENT ACCOUNTCURRENT ACCOUNT SURPLUSESCURRENT ACCOUNTSCURRENT PRICESDEBTDEBT CRISISDEBT LIABILITIESDEBT RATIODEFICITSDEFLATIONDEPENDENTDEPENDENT VARIABLEDEPENDENT VARIABLESDEPOSITDERIVATIVESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDISTORTIONSDOMESTIC CREDITDOMESTIC CURRENCYDOMESTIC ECONOMYDOMESTIC FINANCIAL SYSTEMDOMESTIC FINANCIAL SYSTEMSDOMESTIC INVESTORSECONOMETRIC ANALYSISECONOMETRIC ESTIMATESECONOMIC ACTIVITYECONOMIC GROWTHECONOMIC IMPLICATIONSECONOMIC PERFORMANCEECONOMIC SYSTEMSECONOMIC THEORYEMERGING ECONOMIESEMERGING MARKET ECONOMIESEMERGING MARKETSEMPIRICAL ANALYSISERROR TERMEXCHANGE RATE ARRANGEMENTEXCHANGE RATE ARRANGEMENTSEXCHANGE RATE FLEXIBILITYEXCHANGE RATE REGIMEEXPECTED RETURNSEXPLANATORY VARIABLESEXTERNAL DEMANDEXTERNAL SHOCKSFINANCIAL CORPORATIONSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL FLOWSFINANCIAL FRAGILITYFINANCIAL INDICATORSFINANCIAL INSTABILITYFINANCIAL INSTITUTIONSFINANCIAL INTEGRATIONFINANCIAL INTERMEDIARIESFINANCIAL MARKETSFINANCIAL SYSTEMSFINANCIAL TRANSACTIONSFISCAL POLICIESFISCAL POSITIONSFIXED EFFECTSFLEXIBLE EXCHANGE RATEFOREIGN ASSETSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN DIRECT INVESTMENTFOREIGN INTEREST RATESFOREIGN INVESTORSGDPGENERAL EQUILIBRIUMGLOBAL IMBALANCESGLOBAL LIQUIDITYGLOBALIZATIONGROWTH RATEGROWTH RATESHIGH CAPITAL MOBILITYHIGH INFLATIONHIGH INFLATION EPISODESHISTORY OF EXCHANGE RATEHOUSINGHOUSING PRICESINCOMPLETE MARKETSINDUSTRIAL ECONOMIESINFLATIONINFLATION RATEINFLEXIBLE EXCHANGE RATE REGIMESINSURANCEINSURANCE COMPANIESINTEREST RATEINTEREST RATESINTERNATIONAL CAPITAL FLOWSINTERNATIONAL COMPETITIVENESSINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL MACROECONOMICSINVESTMENT INFLOWINVESTMENT INFLOWSLESS DEVELOPED COUNTRIESLEVERAGELIABILITYLIQUIDITYLIQUIDITY SUPPORTLOANLOAN MARKETSLOCAL CURRENCYMACROECONOMIC POLICIESMACROECONOMIC POLICYMACROECONOMICSMARKET PARTICIPANTSMARKET RATEMISALIGNMENTMISALIGNMENTSMONETARY ANCHORMONETARY ANCHOR COUNTRYMONETARY AUTHORITYMONETARY POLICIESMONETARY POLICYMONETARY STABILITYMONEY MARKETOVERVALUATIONPENSION FUNDSPORTFOLIOPORTFOLIO THEORYPRIVATE CAPITALPRIVATE CREDITPRIVATE INFLOWSRANDOM VARIABLERAPID CREDIT EXPANSIONRAPID GROWTHRATE OF GROWTHRATE OF INFLATIONREAL APPRECIATIONREAL EXCHANGE RATEREAL EXCHANGE RATE MISALIGNMENTSREAL EXCHANGE RATE OVERVALUATIONREAL GDPREAL INTEREST RATERECESSIONREGRESSION ANALYSESREGRESSION ANALYSISREGULATORY FRAMEWORKSRESERVE ASSETSRISK AVERSIONRISK PREMIUMSENSITIVITY ANALYSISSLOWDOWNSTANDARD DEVIATIONSYSTEMIC BANKING CRISESSYSTEMIC BANKING CRISISSYSTEMIC CRISISTIME DEPOSITSTRADE CREDITTRADE CREDITSTRADE SHOCKSTRADINGTRADING PARTNERSTROUGHUNCERTAINTYVOLATILITYVULNERABILITYWEALTHWEIGHTSWORLD DEVELOPMENT INDICATORSWORLD ECONOMYWORLD INTEREST RATEWORLD INTEREST RATESWorld Bank10.1596/1813-9450-6270