Analyzing Private Sector Credit Growth in Ghana

Abstract

In this paper, we define a credit boom as an episode during which real private sector credit growth exceeds the level typically attained during a normal business cycle expansion. We employ HP filter to disaggregate real private sector credit into its trend and cyclical components and use 1.5 standard deviation of the cyclical component to establish thresholds for identifying credit booms in Ghana. Two episodes of credit booms (1974-76 and 1988-89) and two episodes of rapid credit growth (1986 and 2000) were identified broadly underpinned by accommodative monetary policy. This finding should provide an early warning signal to policy making since excessive credit growth has had destabilizing consequences on the health of the banking sector.