Credit supply shocks and the global financial crisis in three small open economies

Richard Finlay and Jarkko P. Jääskelä

Journal of Macroeconomics, 2014, vol. 40, issue C, 270-276

Abstract: We investigate the impact of domestic and foreign credit supply shocks on a number of key macroeconomic variables for three small open economies: Australia, Canada and the UK. We find that negative domestic and foreign credit supply shocks together explain, on average, one-third to one-half of the fall in business credit and rise in spreads seen in the three countries during the financial crisis; other identified non-credit-supply shocks explain the rest. Credit supply shocks also explain around one-sixth of the fall in output in the three countries, and one-quarter of the fall initially seen in UK inflation. This suggests that credit supply shocks played an important role in the financial crisis, but not a dominant one.

Keywords: Sign-restricted VAR; Credit supply; Small open economy (search for similar items in EconPapers)
JEL-codes: E32 E51 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:270-276

DOI: 10.1016/j.jmacro.2014.01.006

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