Is Credit Activity in Euro Area Supply or Demand Induced

Silvo DAJ Man ()
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Silvo DAJ Man: Department of Economic Policy University of Maribor Maribor Slovenia, Postal: SI

Journal of Advanced Research in Law and Economics, 2018, vol. 9, issue 2, 452-462

Abstract: In bank based financial systems bank loans are the primary external source of funding for enterprises During a period of subdued economic and credit activity answer to the question whether credit standards or loan rates is the main instrument of credit distribution are of great economic policy relevance A closely related question is to what extent banks tighten credit standards because of changes in factors of the credit standards related to banks characteristics supply induced tightening and to what extent as a response to changes in credit standards factors related to the demand for loans demand induced tightening To answer these questions for the euro area we rely to a great extent on the euro area bank lending survey performed by the Eurosystem and propose a new measure of changes in credit standards for business loans that captures only the effect of the supply induced component of the changes in credit standards The results indicate that tightened credit standards of which approximately a half is supply induced significantly affect the macroeconomy whereas the price of the loans does not In order to revive the credit activity in the euro area simply lowering the policy interest rates will not suffice We list some measures that could spur this process

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:srs:jarle0:v:9:y:2018:i:2:p:452-462

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