Empirical Investigation of the Effect of Bank Long Term Debt on Loans and Output in the Euro-zone

Claire Chevallier

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: The objective of this study is to empirically test whether bank loan supply affects output in the Euro-zone from 1999Q1 to 2014Q4. It uses shocks to bank deposits and shocks to bank wholesale debt issuance as instruments in a linear two stage least square specification to evaluate the role of loan supply in affecting output. The findings show that banks' changed preferences for wholesale debt funding are important determinants of loan supply, in particular during the crisis. I also find evidence that loan supply affects output significantly and positively. The validity of the model is also tested by verifying the linearity assumption using non-parametric estimation techniques.

Keywords: Bank lending channel; Bank funding; Bond issuance; Credit; Euro-area (search for similar items in EconPapers)
JEL-codes: E41 E44 E51 G21 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:17-04

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