• Description

The literature has identified credit expansions to the private sector as an important predictor of financial crises in developing countries. We extend the literature by decomposing credit into credit extended to households and credit extended to firms. We compile a unique disaggregated data set and find evidence that household credit growth and firm credit growth have positive, distinct, and statistically significant effects on the likelihood of banking and currency crises. Furthermore, household credit growth is a particularly important predictor of banking crises in countries with a high propensity to consume. Working Paper 06-55