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The Global Crisis watershed: Investment-less credit booms

Ohnsorge, Franziska, Yu, Shu, (2017), “The Global Crisis watershed: Investment-less credit booms”, Vox Eu, 16 May

Credit booms have often financed rapid investment growth, with investment subsequently stalling (Mendoza and Terrones 2012, Gorton and Ordonez 2016). However, after the Global Crisis, the nature of the relationship between credit and investment has changed. Specifically, credit to the nonfinancial private sector has risen rapidly in several several emerging market and developing economies (EMDEs), while investment growth has slowed (Kose et al. 2017, Caballero et al. 2016). Against this background, we address three questions: How has investment evolved during credit booms and deleveraging episodes in EMDEs? How often have credit booms been accompanied by investment booms? And finally, how has output growth has evolved over the credit cycle?

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