Understanding the dichotomy of financial development: credit deepening versus credit excess

In this paper we introduce several methodological innovations in an empirical analysis of the determinants of the private Credit-to-GDP ratio, which allow us to estimate the long-term sustainable level of credit deepening in a country and its deviations. We also find new evidence of different effects of some macroeconomic variables in the long, medium and short-term on the credit ratio.

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