What drives credit growth in emerging Asia?

This paper seeks to uncover the main drivers of credit growth in emerging Asia using a multi-country structural vector autoregressive (SVAR) model. We propose an innovative identification strategy in a two-block SVAR model whereby shocks within blocks are identified using sign restrictions, whereas shocks across the blocks are identified using a block-recursive structure. We find that domestic factors are more dominant than external factors in terms of driving rapid credit growth in emerging Asia. This is particularly true for domestic monetary policy, which can play a pivotal role in managing rapid credit growth in emerging Asia.