César Calderón, Megumi Kubota, 16 December 2012

How can we predict bad credit booms? This column argues that surges in gross private inflows are good predictors of booms in credit markets, especially those booms that end up in a systemic banking crisis. Using quarterly data on gross capital inflows and real credit, gross private inflows remain a useful measure even when accounting for the past history of credit and asset prices The evidence suggests that surges in capital flows may well mean future financial turmoil.

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