Rapid Credit Growth in Azerbaijan: Convergence or Boom? Macroeconomic Implications of Fast Credit Expansion

Table of Contents

CHAPTER 1: INTRODUCTION

CHAPTER 2: RECENT ECONOMIC OVERVIEW IN AZERBAIJAN

CHAPTER 3: LITERATURE REVIEW

CHAPTER 4: CREDIT BOOM

4.1 MAIN REASONS OF CREDIT BOOMS

4.2 EMPIRICAL INDENTIFICATION OF CREDIT BOOMS

CHAPTER 5: DATA ANALYSIS AND THEORETICAL FRAMEWORK

5.1 DATA ANALYSIS OF THE DETERMINANTS OF EQUILIBRIUM LEVEL OF CREDIT

5.2 THEORETICAL FRAMEWORK

CHAPTER 6: EMPIRICAL ANALYSIS AND RESULTS

6.1 FINDING THE CREDIT BOOM LEVEL

6.2 UNIT ROOT TESTS

6.3 COINTEGRATION TESTS

6.4 VECTOR ERROR CORRECTION MODEL

6.5 MODEL CHECKING

CHAPTER 7: CONCLUSION AND DISCUSSION

Research Objectives and Key Topics

This thesis examines the credit boom that occurred in Azerbaijan in 2008, employing Vector Error Correction Models (VECM) to analyze the long-run and short-run dynamics of credit levels. The primary research goal is to identify the macroeconomic implications of rapid credit expansion and to determine the equilibrium level of credit within the Azerbaijani economy.

• Detection and identification of credit boom episodes using Hodrick-Prescott (HP) filtering.
• Econometric analysis of determinants of equilibrium credit levels, including oil prices, GDP, and exchange rates.
• Short-run and long-run dynamics of credit-to-GDP ratios using VECM methodology.
• Investigation of the nexus between rapid credit expansion and financial crises.

Excerpt from the Book

Summary of Chapters

CHAPTER 1: INTRODUCTION: This chapter introduces the topic of credit booms in Azerbaijan between 2000 and 2009 and outlines the research objective of linking credit expansion to macroeconomic indicators.

CHAPTER 2: RECENT ECONOMIC OVERVIEW IN AZERBAIJAN: This chapter provides context regarding the Azerbaijani economy, focusing on the oil sector's dominance and the performance of the banking system.

CHAPTER 3: LITERATURE REVIEW: This chapter reviews existing empirical research on identifying credit booms and their relationship with financial crises.

CHAPTER 4: CREDIT BOOM: This chapter discusses the components of credit growth, including financial deepening and excessive cyclical movements, while identifying the key drivers like the financial accelerator.

CHAPTER 5: DATA ANALYSIS AND THEORETICAL FRAMEWORK: This chapter details the data sources and the rationale for selecting variables such as real GDP, oil prices, and real effective exchange rates.

CHAPTER 6: EMPIRICAL ANALYSIS AND RESULTS: This chapter presents the results of the HP filter analysis, unit root tests, and VECM estimations to determine credit boom levels and dynamic adjustments.

CHAPTER 7: CONCLUSION AND DISCUSSION: This chapter synthesizes the research findings, confirming the strong link between the 2008 credit boom in Azerbaijan and the subsequent financial crisis.

Keywords

Credit boom, Azerbaijan, VECM, financial deepening, macroeconomic indicators, oil prices, GDP, cointegration, banking crisis, real effective exchange rate, financial accelerator, unit root test, monetary policy, credit-to-GDP ratio, economic fluctuations.

Frequently Asked Questions

What is the core focus of this thesis?

The thesis investigates the credit boom in Azerbaijan during 2008 and its subsequent macroeconomic implications.

What are the primary themes covered in the study?

Key themes include the detection of credit booms, the relationship between financial deepening and credit expansion, and the impact of macro aggregates like oil prices and exchange rates on credit stability.

What is the main research question?

The study aims to determine the long-run and short-run equilibrium levels of credit in Azerbaijan and evaluate whether rapid credit growth served as a precursor to the 2008 financial crisis.

Which methodologies are employed?

The author uses the Hodrick-Prescott (HP) filter to identify credit booms and a Vector Error Correction Model (VECM) to analyze the dynamics and equilibrium of the credit-to-GDP ratio.

What does the main body discuss?

It covers literature review, theoretical frameworks of credit booms, data analysis, and the empirical modeling results using unit root and cointegration tests.

Which keywords best characterize this research?

Core terms include Credit boom, Azerbaijan, VECM, financial deepening, macro aggregates, and financial crisis.

Why are oil prices significant to this model?

As Azerbaijan is an oil-rich country, oil prices are a major determinant for capital inflows and export revenue, directly influencing credit availability.

What conclusion does the author draw about the 2008 crisis?

The author concludes that there is a strong direct relationship between the credit bubble observed from May to October 2008 and the financial crisis that followed later that year.