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Abstract

Credit to the private sector has been growing dramatically in both developed and developing countries for more than six consecutive decades, and since the developing world differs in the effects of private debt accumulation, it requires particular policies adjusted to the level of local financial development. This paper discusses the way policymakers in the EMDEs can distinguish «unhealthy» build-ups using real economic data and ex-post empirical analysis and economic measures that are proven to be efficient in containing them. First, this paper summarises the economic activity around the booms of private debt, connecting macroeconomic processes and general levels of financial development to the booms' quality. Then, by analysing an unbalanced dataset for more than 50 developing countries, it discusses which macroeconomic policies and economic reforms have the strongest connection and predictive power over the «unhealthy» booms. This research documents evidence that policymakers in EMDEs have tools to distinguish bad and good booms in the early stages of their accumulation, and that specific policy interventions in the domain of financial liberalisation and macroprudential supervision are crucial for the subsequent private credit build-ups' developments.

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