Forecasting Currency, Banking, and Stock market Crises with Credit Booms

Credit Booms Duration is Three to Six Years for both $EEM and Industrialized Countries ~ Mendoze and Terrones (2008)

Equity prices rise to 25-30% percent (above trend) at the peak of credit booms, and housing prices rise 10-15 percent above trend

The median Real Exchange Rate rises 7% above trend at the peak of the credit boom, drops to 4% percent below trend during unwinds

Currency crises are observed in 54 percent of all credit booms, in 44 percent of Industrialized Countries and 66 percent of Emerging Market credit booms

The downswing of credit booms leads to equity price collapses of about 20% (below trend) in real terms $study

IFS data misses many credit booms due to securitization

Below shows the deviation from trend of credit.

Credit booms tend to be clustered geographically and temporally

* The ongoing credit boom is in Hong Kong, through other measures of credit would show more countries amidst a boom.

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