Credit cycles and real activity: the Swiss case

Gregor Bäurle () and Rolf Scheufele
Additional contact information
Gregor Bäurle: Swiss National Bank, Economic Analysis
Authors registered in the RePEc Author Service: Gregor Bäurle ()

Empirical Economics, 2019, vol. 56, issue 6, No 5, 1939-1966

Abstract: Abstract The global Great Recession has sparked renewed interest in the relationships between financial conditions and real activity. This paper considers the Swiss experience, studying the impact of credit market conditions and housing prices on real activity over the last three decades through the lens of a medium-scale structural Bayesian vector autoregressive model. From a methodological point of view, the analysis is challenging for two reasons. First, we must cope with a large number of variables which leads to a high-dimensional parameter space in our model. Second, the identification of economically interpretable shocks is complicated by the interaction among many different relevant factors. As to the first challenge, we use Bayesian shrinkage techniques to make the estimation of a large number of parameters tractable. Specifically, we combine a Minnesota prior with information from training observations to form an informative prior for our parameter space. The second challenge, the identification of shocks, is overcome by combining zero and sign restrictions to narrow the plausible range of responses of observed variables to the shocks. Our empirical analysis indicates that while credit demand and, in particular, credit supply shocks explain a large fraction of housing price and credit fluctuation, they have a limited impact on real activity.

Keywords: Credit supply and demand; Housing prices; SVARs; Bayesian shrinkage (search for similar items in EconPapers)
JEL-codes: C11 C32 E30 E44 E51 E52 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-018-1449-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Credit cycles and real activity - the Swiss case (2016)
Working Paper: Credit cycles and real activity - the Swiss case (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:56:y:2019:i:6:d:10.1007_s00181-018-1449-0

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-018-1449-0

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().