Financial Shocks and Credit Cycles

Mikhail Mamonov (), Vera Pankova (), Renat Akhmetov () and Anna Pestova ()
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Mikhail Mamonov: Institute for International Studies, MGIMO University; CERGE-EI
Vera Pankova: Centre for Macroeconomic Analysis and Short-term Forecasting (CMASF)
Renat Akhmetov: Centre for Macroeconomic Analysis and Short-term Forecasting (CMASF)
Anna Pestova: Institute for International Studies, MGIMO University; CERGE-EI

Russian Journal of Money and Finance, 2020, vol. 79, issue 4, 45-74

Abstract: This paper compares the contribution of internal and external financial shocks to the formation of credit cycle phases using cross-country quarterly data for 27 countries, including advanced and emerging economies, for the period from 1990 through 2019. To conduct comparative analysis, we apply IV Probit models of the credit cycle which take into account the relationship between the credit and business cycles the inertia of the cycles and the non-linearity of the transmission of internal and external financial shocks to the economy through the credit market. In our sample of countries, the transmission of shocks to credit cycle phases proves to be non-linear (a switching effect is observed depending on the time elapsed since the shocks occurred); with the economic effect of the external capital inflow shock being in absolute value twice as strong as that of the bank credit supply shock (on average for the current and subsequent quarters); in turn, the bank credit supply shock is twice as strong as the monetary policy shock. A counterfactual analysis of the role of financial shocks in the formation of the credit cycle in Russia indicates an increase in the effectiveness of the monetary authorities in terms of their ability to control the phases of the credit cycle and, accordingly, a relative decrease in the role of credit supply shocks, while the global financial cycle retains its dominance.

Keywords: credit supply shocks; monetary policy shocks; global financial cycle; business cycle; recessions (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 F32 F44 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:bkr:journl:v:79:y:2020:i:4:p:45-74

DOI: 10.31477/rjmf.202004.45

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