8 the private sector.<sup>6</sup> This series is converted into a “real” indicator by using a price deflator; namely, the GDP deflator except for a few cases where only the CPI is available on a quarterly basis. Using this real credit data series, this paper defines that a recovery is credit-less when the average of year-on-year growth rates of real bank credit during the first eight quarters of the recovery is less than or equal to zero. In other words, for a recovery to be classified as creditless, an average negative year-on-year real credit growth occurs from the first quarter since the trough, _t+1_ , to the eighth quarter since the trough, _t+8_ . The bottom panel of Figure 1 shows the two recovery patterns for Argentina. For instance, the recovery following the trough dated in 1995Q3 is considered to be credit-with as the average real credit growth over the eight quarters (the dark gray shade) is positive (i.e., 6.0 percent). In contrast, the second recovery is credit-less since a negative real credit growth is found (i.e., -34.6 percent).

The recovery-type definition used here reveals that more than 25 percent of all recoveries with credit data are credit-less events (that is, 72 out of the 266 recovery episodes; six of our recoveries do not have credit data—Annex Table 2).<sup>7</sup> Moreover, it is found that credit-less recoveries occur in both advanced and emerging market economies. In sum, as already noted, credit-less recoveries are far from rare events. Figure 2 shows the number of recoveries—both credit-less and credit-with—by country groups and, from the figure, the following three conclusions can be noted. First of all, by looking at the episodes in advanced and emerging market economies separately, credit-less recoveries are only slightly more common in emerging markets; the share of credit-less recoveries in advanced and emerging market economies is 25 and 30 percent. This might be related to the degree of the development of financial markets; indeed, Abiad _et al_ . (2011) find that there is a negative relationship between financial development, measured by credit-to-GDP ratio, and the incidence of credit-less events.

Secondly, as clearly shown in the figure, the global financial crisis in 2009 is an unusually important event. For advanced economies, including recoveries identified in 2010, credit-less recoveries in these two years account for about 45 percent of all credit-less recoveries. For the emerging market counterparts, the share is a little lower but still important—38 percent of all credit-less recoveries. In fact, out of 18 recoveries recorded in 2009 and 2010 for advanced countries, 12 recoveries are considered to be credit-less (i.e., around 67 percent of all recoveries in these two years). By contrast the case of emerging markets is less stark in line with the fact that many of these countries performed better during the 2008–09 financial crisis.

The third point to be noted is that, in both advanced and emerging market economies, there is variation over time in the frequency of credit-less recoveries. Specifically, credit-less episodes are more likely to be linked to large economic events, such as recessions in the mid 1970s in developed countries, the collapse of the European Exchange Rate Mechanism (early 1990s

> 6 As discussed in Abiad _et al_ . (2011), line 22D of IFS covers credit extended by banks only and, therefore, non-bank financial intermediaries are ignored from the discussion.  It should be noted that line 22D has breaks in the series in some countries even though data are some times reported.  Guided by the IFS country notes, this paper disconnects the series when breaks are reported and treats it separately before and after the breaks to avoid misidentification of recovery patterns.  Also, where line 22D has been discontinued, this paper extends the series using the growth rate the fuller coverage line 22S (bank claims on other sectors).

> 7 Alternative definition, which is based on the level of real credit (i.e., a credit-less recovery if the level of real credit in the eighth quarter of the recovery, _t+8_ , is lower than that of the trough, _t_ ), is also tried and shows that the share of credit-less recoveries is around 20 percent.  Moreover, the definition based on a shorter span of time, four quarters, is tried.  It shows more frequent incidence of credit-less recoveries using this definition (i.e., 33 percent and 25 percent of all recoveries are credit-less for the growth and level data, respectively).  But this definition was considered inadequate to judge the recovery due to its short length.