 The Euro Area credit crunch conundrum: Was it demand or supply driven?Fausto Pacicco, Massimiliano Serati () and Andrea Venegoni Economic Modelling, 2022, vol. 106, issue C Abstract: This paper aims at studying the mechanisms through which credit markets convey financial shocks to the real economy. To accomplish this task, we perform a comprehensive assessment of the credit market dynamics in the Euro Area, from their drivers and evolution over time to the cross-country heterogeneity of their effects. We do so by employing a Bayesian TVP-FAVAR model which adopts a novel identification strategy exploiting data on 11 Euro Area economies (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) between 2000:Q1 and 2018:Q4. We find that firms' financing displays higher sensitivity than households’ borrowing to credit demand and supply contractions and that, overall, credit aggregates reactions to such shocks display both time and cross-country heterogeneities. Policy-wise, this evidence highlights the need for structural interventions to better align the functioning of the banking and industrial systems in the Euro Area countries. Keywords: Credit crunch; Monetary policy transmission; Bank lending channel; Firms' balance-sheet channel; Bayesian time-varying parameters FAVAR (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:106:y:2022:i:c:s0264999321002698 DOI: 10.1016/j.econmod.2021.105680 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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