Most CESEE countries had an impressive credit growth prior to the outbreak of
the financial crisis in 2008. Nevertheless, that experience has taught us
that the strong expansion of private sector credit must not be ignored. In an
attempt to investigate whether the rapid credit growth was a result of the
catching-up process or was a risky process with well-known consequences, we
performed empirical analysis by applying statistical (HP filter) and
econometric (pooled OLS, fixed effect OLS, and PMG) approaches. The empirical
results of both out-of-sample and in-sample approaches suggest that in the
pre-crisis period excessive credit growth in terms of higher actual than
estimated credit growth was recorded for the majority of the countries
observed. Compared to the out of-sample approach, in-sample estimates, which
turned out to be more reliable, indicate that the pre-crisis growth was less
pronounced and that over the post-crisis period actual credit growth
fluctuated around the estimated growth, pointing to the fact that the former
was in line with movements in its fitted values.
Cabo Verde
