Asymmetric adjustment between household credit and economic growth in Malaysia

Past studies have debated whether credit is the main culprit behind the financial crisis, especially household credit. Nonetheless, it is unknown how fast the economy would adjust back to its long run path after a credit shock. Motivated by scant literature in answering this question and the high growth rate of household credit, the objective of this study was to investigate the existence of asymmetric cointegration between household credit and economic growth in Malaysia. Employing quarterly data over the sample period of 2000 to 2014 and using the asymmetric cointegration test introduced by Enders and Siklos (2001), the results showed the existence of asymmetric adjustment between household credit and economic growth in the momentum models. The findings suggest that the economy tends to adjust back to its long run equilibrium path following a negative credit shock (i.e. credit crunch). Conversely, the economy is likely to diverge from its long run equilibrium path after a positive credit shock (i.e. credit boom). The study provides some policy implications for the governments in the monitoring of financial intermediaries, especially banks