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How did the collapse of the asset-backed securities (ABS) market during the 2007 to 2009 financial crisis affect the supply of credit to the broader economy? Using new data on the U.S. credit union industry, we find that ABS-related losses are associated with a large contraction in the supply of credit to consumers, especially among those credit unions that began the crisis with weaker capitalization. We also find that this credit supply shock restricted the availability of mortgage and automobile credit. These results show how movements in the prices of financial assets can affect the real economy.

The economies in CEE characterize with common credit cycle. The rise and fall of level of credit depends on both demand and supply factors. For the period 2005 – 2015 it could separate two stages: first – before the crisis in 2008, when raise demand and supply for credit and it led to credit expansion; second – after the crisis in 2008 – demand and supply fell sharply and credit changes in the same direction. During different stages the factors driving the demand and supply for credit are changed deeply. The research uses panel data approach. It has found common tendencies in credit cycle for the countries in CEE. The volume of credit increases during whole period 2005-2015. For the countries in CEE the volume of credit depends on the disposal resources very strong. By the first group of countries researched the volume of overnight deposits influence on credit increase. In this group are Poland, Check Republic and Slovakia. Second group of countries, including Bulgaria, Romania and Hungary, the volume of credit depends on more of time deposits.

The financial crisis of 2007 to 2009 has given renewed impetus to the study of financial frictions and their impact on macroeconomic activity. Economists have refined existing models of financial frictions to construct narratives of the recent crisis. Although the recent innovations to the modeling of financial frictions share many common elements, they also differ along some key dimensions. These differences may not matter so much for story-telling exercises that focus on constructing logically consistent narratives that highlight particular aspects of the crisis. Frictions operating through shocks to demand may be the result of the deterioration of the creditworthiness of borrowers, perhaps through tightening collateral constraints or to declines in the net present value of the borrowers' projects. Shocks to supply arise from tighter lending criteria applied by the lender, especially by the banking sector. The outcome of this debate has consequences not only for the way that economists approach the theory but also for the conduct of financial regulation and macro stabilization policy.

It is generally presumed that stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is infinitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium effects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a firm-level panel, we find evidence that an Indian judicial reform that increased banks' ability to recover nonperforming loans had such an adverse distributive impact.

PurposeThis paper investigates the effect of abnormal increase in credit supply on economic growth in Nigeria after controlling for the quality of the legal system, size of central bank asset, banking sector cost efficiency and bank insolvency risk.Design/methodology/approachThe authors employ the generalised method of moments (GMM) regression methodology to estimate the effect of abnormal increase in credit supply on two measures of economic growth in Nigeria.FindingsThe abnormal increase in credit supply has a significant effect on economic growth. Abnormal increase in credit supply increases real gross domestic product (GDP) growth. The abnormal increase in credit supply decreases real GDP per capita during the global financial crisis. The abnormal increase in domestic credit to the private sector has a significant positive effect on GDP per capita when there is strong legal system quality in Nigeria. In contrast, the abnormal increase in domestic credit to the private sector has a significant negative effect on real GDP growth when there is strong legal system quality in Nigeria.Practical implicationsThe abnormal increase in credit supply is ineffective in increasing GDP per capita during crisis years. Policymakers should be cautious in pressuring financial institutions to release an abnormally large amount of credit into the economy particularly during financial crises. Rather, policymakers should encourage financial institutions to supply credit in a sustained manner – not in an abnormal manner –and in a way that supports growth.Originality/valueThe present study contributes to the literature by analysing the effect of abnormal increase in credit supply on economic growth in a developing country context.

This book, written on the eve of the 20th anniversary of the fall of the Berlin wall in 1989, addresses three questions that relate to recession, recovery, and reform, respectively, in Europe and Central Asia (ECA) transition countries. Did the transition from a command to a market economy and the period when it took place, plant the seeds of vulnerability that made transition countries (the region excluding Turkey) more prone to crisis than developing countries generally? Did choices made on the road from plan to market shape the ability of affected countries to recover from the crisis? What structural reforms do transition countries need to undertake to address the most binding constraints to growth in a world where financial markets have become more discriminating and where capital flows to transition and developing countries are likely to be considerably lower than before the crisis? This report is structured as follows: chapter one of the book analyses how countries fell into recession and crisis, why not all of them were equally affected, and whether different policies could have positioned them better to face the crisis. Chapter two discusses rescue and stabilization and the role of international collective action. The next two chapters focus on policies for recovery, chapter three on restructuring bank, corporate and household debt and chapter four on scaling up social safety nets. Chapters five and six focus on reform, examining the binding constraints to growth and the policy agenda in the most important sectors identified by that analysis.

This book's prime audience is government policy-makers. It provides a policy framework for governments to increase micro, small and medium enterprises' access to financial services?one which is based on empirical evidence from around the world. Financial sector policies in many developing countries often work against the ability of commercial financial institutions to serve this market segment, albeit, often unintentionally. The framework guides governments on how to best focus scarce resources on three things: ? developing an inclusive financial sector policy; ? building healthy financial institutions; and ? investing in information infrastructure such as credit bureaus and accounting standards. The book provides examples and case studies of how such a strategy has helped to build more inclusive financial institutions and systems in many countries.

An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.

An increase in credit supply driven by looser lending constraints in the mortgage market is the key force behind four empirical features of the housing boom before the Great Recession: the unprecedented rise in home prices, the surge in household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are more difficult to reconcile with the popular view that attributes the housing boom only to looser borrowing constraints associated with lower collateral requirements, because they shift the demand for credit.

Excessive credit growth and the emergence of bubbles increase the likelihood of a systemic crisis. While no causality between credit growth and systemic crises has been empirically established, it seems reasonable to think that excessive credit growth goes hand in hand with the emergence of bubbles and that it is their bursting that triggers a systemic crisis. This article explores the interaction between the demand for bubbly assets and the supply of credit in a dynamic overlapping generations economy and examines the macroprudential policy implications.