The Role of Credit in International Business Cycles
Working Papers from Bank of Canada
This paper examines the role of bank credit in modeling and forecasting business cycle fluctuations, and investigates the international transmission of US credit shocks, using a global vector autoregressive (GVAR) framework and associated country-specific error correction models. The paper constructs and compiles a dataset on bank credit for 33 advanced and emerging market economies from 1979Q1 to 2009Q4. The empirical results suggest that the incorporation of credit provides significant improvement in modeling and forecasting output growth, changes in inflation and long run interest rates, for countries with developed banking sector. Impulse response analysis provide strong evidence of the international spillover of US credit shocks to the UK, the Euro area, Japan and other industrialized economies, and the propagation to the real economy.
Keywords: Business fluctuations and cycles; Credit and credit aggregates; Econometric and statistical methods; International financial markets (search for similar items in EconPapers)
JEL-codes: C32 G21 E44 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-for, nep-mac, nep-mon and nep-opm
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Working Paper: The role of credit in international business cycles (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:bca:bocawp:12-36
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