Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries?

While earlier studies focus on credit booms in advanced and emerging market countries, this paper examines the characteristics and determinants of credit booms in developing countries. The results find that credit booms in developing countries are less likely to be associated with systemic banking crises. Rather, they are more likely to be the result of financial deepening than of dangerous buildups of financial risks; the prevention of credit booms in developing countries may thus be associated with higher opportunity costs in terms of foregone growth opportunities. Random effect probit and tobit regressions find some evidence that credit booms are likely to start when the economy is expanding and if the financial sector is larger. Although monetary and fiscal policies do not help in preventing credit booms in developing countries, we find that prudential regulations and supervision can play a much more effective role in preventing “bad” booms, while incurring substantially lower costs. Although “bad” booms are hard to identify ahead of time, the duration and size of booms, as well as the level of credit aggregates, appear to be useful indicators in determining them.     

‘Old’ Europe’s wage dynamics and trade imbalances: Is there a link?

No evidence is found that gains in relative labour productivity have had a positive effect on the trade balance/GDP ratio for the ‘old’ EU members (excluding Germany) from 1961 to 2014. Rising relative wage rate is shown to have had strong—and negative—effects on the trade balance/GDP ratio for the EU-14, at least in the longer run. It follows that external rebalancing may be achieved through a sufficiently strong fall in the relative wage rates, without productivity changes having a role to play. This is not to claim that the EU-14 (and its members suffering trade deficits in particular) ought to attempt the devastating policy of ‘internal devaluation’. A constructive alternative would be to achieve the fall in the relative wage rates through faster growth of German nominal wage rates. Whether that alternative is practicable is another matter. But it can be argued that without that alternative being followed the European Union will remain a stagnant area plagued by recurrent crises caused by imbalanced trade among its Member States.     

The new international economic order: a view from the socialist corner

The attitude towards development aid of the socialist countries of Eastern Europe, who recently made themselves conspicuous once more by their absence from the Cancún summit, has come under increasing attack from the Third World. Our author takes a critical look at the socialist countries’ position and explains why it would serve their own interests to take a different stand.     

Performance measurement of early warning models: Comments on west and other weakness/failure prediction models

The paper presents a new measure to evaluate models which predict severe bank weakness or failure. The conventional measure has been the ‘percentage classified correctly (CC)’. This measure can be quite high even though a low percentage of weak or failed bank is classified correctly. We resolve this problem by weighting CC by two additional factors: (1) banks that actually weakened or failed as a percentage of those that fail a model's ‘hurdle test’, and (2) the percentage of all weak or failed banks correctly classified. The paper then compares the performance of several recently published early warning models using the new measure.     

An application of a segmentation design based on a hybrid of canonical correlation and simple crosstabulation

This research illustrates a practical application of a segmentation scheme based on a combination of canonical correlation and crosstabulation. A sample of readers of a popular genre of novels is segmented on the basis of psychographic, demographic, and activity measures. Four distinct consumer segments are postulated-movers and shakers, isolated readers, young swingers, and laggards. The characteristics that differentiate each of these segments are also presented.