BIS research posits test for unsustainable credit growth
Authors link long-run credit growth with leverage and debt service ratio, proposing a model they claim would have helped predict the 2008 financial crisis three years before it struck
Researchers at the Bank for International Settlements (BIS) have put forward a method for assessing when credit growth is unsustainable, offering a method that could predict financial crises years in advance.
Published on May 8, the working paper Leverage dynamics and the real burden of debt by Mikael Juselius and Mathias Drehmann begins with the problem of separating long-term credit growth driven by financial deepening from more dangerous movements.
Juselius and Drehmann use a vector
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