The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues.An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.The papers carry the names of the authors and should be cited accordingly.The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors.They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 6270The main goal of the paper is to examine whether surges in private capital inflows lead to credit booms.The authors built a quarterly database on gross capital inflows, credit to the private sector, and other macro-financial indicators for a sample of 71 countries from 1975q1 to 2010q4.Identifying credit booms is not trivial: they use different criteria implemented in the literature.The estimates suggest that: (i) Surges in gross private capital inflows are overall good predictors of credit booms.(ii) The likelihood of credit booms is higher if the surges in foreign flows are driven by private other investment inflows and, to a lesser extent, portfolio investment inflows.(iii) Surges in gross inflows are also good predictors of credit booms that end up in a financial This paper is a product of the Office of the Chief Economist, Latin America and the Caribbean Region, and Development Economics, World Development Report Unit.It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world.
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