Bank-specific shocks and aggregate leverage: Empirical evidence from a panel of developed countries
Fabrizio Casalin and
Journal of Financial Stability, 2020, vol. 49, issue C
This paper investigates the link between shocks in the banking sector and aggregate leverage measured by the credit-to-GDP gap. Using a balanced panel of 15 countries for the period 1989–2016, we exploit the approach due to Gabaix (2011) and consider banking granular shocks as an indicator of banking distress. Using methods that account for potential endogeneity, we find that banking shocks Granger-cause aggregate leverage. In particular, banking shocks tend to increase the level of leverage and cause departures of the credit-to-GDP ratio from its long-term trend.
Keywords: Banking shocks; Granularity model; Credit-to-GDP gap; Panel VAR; Granger causality (search for similar items in EconPapers)
JEL-codes: E51 G21 C23 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:49:y:2020:i:c:s1572308920300218
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