Uncovering the Dynamic Relationship between Credit and Sustainable Economic Growth in Selected CEE Countries

Adam Altăr, Matei Nicolae Kubinschi and Alina Zaharia
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Adam Altăr: Department of Computer Science, Statistics and Mathematics, Faculty of Computer Science for Business Management, Romanian-American University, 012101 Bucharest, Romania
Matei Nicolae Kubinschi: Department of Money and Banking, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010961 Bucharest, Romania
Alina Zaharia: Department of Money and Banking, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010961 Bucharest, Romania

Sustainability, 2021, vol. 13, issue 11, 1-19

Abstract: Establishing a functional financial sector has been one of the pillars of transition to a functional market economy over the last three decades in the CEE region. The present paper provides a comprehensive analysis of the relationship between credit and economic growth in selected CEE countries, namely, Czechia, Romania, Poland and Hungary, aiming to answer questions related to (i) the role of the banking sector in fostering sustainable economic growth and the causality direction between the financial and real sector, (ii) the relationship between consumption and investment and certain categories of loans and (iii) the identification of loan supply shocks and their role in explaining the dynamics associated with other macroeconomic variables. Using a time-varying parameter structural vector autoregression model with stochastic volatility (TVP-SVAR) and sign restrictions, we identify a non-financial corporations (NFC) credit supply shock and an investment shock. Potential policy solutions to ensure a sound contribution of the financial sector to economic growth in the analyzed economies relate to the strong relationship identified between the two variables. From this perspective, the study is among the first to employ a robust dynamic framework for assessing the role of the financial sector in fostering sustainable economic growth in European emerging market economies.

Keywords: credit; sustainable economic growth; structural models; financial intermediation; bayesian estimation; CEE countries (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:11:p:6349-:d:568274

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