Banking sector concentration, credit shocks and aggregate fluctuations

Simone Alfarano and Omar Blanco-Arroyo

Economics Letters, 2022, vol. 218, issue C

Abstract: This paper studies whether the raise in concentration experienced by the Spanish banking sector has lead to the increase of bank-specific credit shocks contribution to aggregate credit. We decompose aggregate credit volatility and find that (i) the Spanish banking sector is granular, (ii) the direct effect of bank-specific shocks accounts for the overwhelming majority of the variation in aggregate volatility, contrary to the manufacturing sector, and (iii) the raise in concentration translated into an increase of bank-specific shocks contribution to aggregate volatility.

Keywords: Granular residual; Idiosyncratic shocks; Banking sector; Manufacturing sector; Concentration; Aggregate fluctuations (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:218:y:2022:i:c:s0165176522002439

DOI: 10.1016/j.econlet.2022.110709

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