Key features and determinants of credit-less recoveries

This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis shows that credit-less recoveries are not unusual. Moreover, the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and by financial stress, in particular if private sector indebtedness is high and the country is reliant of foreign capital inflows. Finally, our model performs well in predicting the credit-less recoveries experienced by emerging market economies in recent years.