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Domestic Credit Growth and International Capital Flows

Philip R. Lane
Trinity College Dublin and CEPR

Peter McQuade
European Central Bank

IIIS Discussion Paper No. 428

Europe experienced substantial cross-country variation in domestic credit growth and cross-border capital flows during the pre-crisis period. We investigate the inter- relations between domestic credit growth and international capital flows over 1993- 2008, with a special focus on the 2003-2008 boom period. We establish that domestic credit growth in European countries is strongly related to net debt in flows but not to net equity in flows. This pattern also holds for an extended sample of 54 advanced and emerging economies.


Last updated 28 August 2014 by IIIS (Email).