Bank lending in a cointegrated VAR model

Filippo Maria Pericoli, Roberto Galli, Cecilia Frale and Stefania Pozzuoli

No 8, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: This paper aims at identifying the link between financial markets and the real sector of the economy. Following the literature on the topic, we select a small set of variables representing the principal financial and real dynamics observed for the Italian economy. As a first result, we find cointegration among the chosen set of variables. Thus we specify and estimate a Vector Error Correction Model which captures both the long-run and the short-term dynamics of the multivariate system. The main innovation of this work lies in investigating the link between lending and growth at a monthly frequency. Moreover, we allow the model to include a structural break due to the latest economic and financial crisis. The model obtained represents an innovative forecasting tool for improving the knowledge, nowcasting and shortterm forecasting of the business cycle by exploiting shocks originating from the lending market that propagate to the real economy.

Keywords: Bank Lending; Forecast; Cointegrated VAR (search for similar items in EconPapers)
JEL-codes: C53 E47 E51 (search for similar items in EconPapers)
Pages: 26
Date: 2013-09
New Economics Papers: this item is included in nep-ban and nep-for
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