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The Riskiness of Credit Allocation and Financial Stability
by Luis Brandao-Marques, Qianying Chen, Claudio Raddatz, Jérôme Vandenbussche, and Peichu Xie

Series:Working Paper No. 19/207
ISBN 9781513513775
Code: #WPIEA2019207

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
39 pages
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We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.
The Riskiness of Credit Allocation and Financial Stability
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 126013 Added: 2019.10.7