The seminar will be held in the Visitor Centre at 10 am, in English language.
Discussant: Péter Benczúr
Abstract
Credit to the private sector has been growing very rapidly in a number of Central and Eastern European countries in recent years. The main question is whether this dynamics is an equilibrium convergence process or may rather pose stability risks. Using panel econometric techniques, this paper attempts to identify the equilibrium credit/GDP levels of the new EU countries, disentangling the observed growth into an equilibrium trend and an excess (boom) component. In the paper the pooled mean group estimator was used for its flexibility and efficiency. Using instrumental variable technique we tested whether long run endogeneity affects the consistency. The estimations show that large part of the credit growth in new member states can be explained by the catching-up process, and, in general, credit/GDP ratios are below the levels consistent with macroeconomic fundamentals. However, in some countries credit growth is significantly faster than what would be justified along the equilibrium path. The study finds that credit growth in Latvia and Estonia can be considered as potentially the most risky, beyond any plausible adjustment rate.