Banking crises and nonlinear linkages between credit and output

Dobromił Serwa ()

Applied Economics, 2012, vol. 44, issue 8, 1025-1040

Abstract: In this article, we analyse the asymmetric causality linkages between credit growth and output growth during banking crises. We employ a recently developed procedure, based on a bivariate Markov switching model, to test the hypotheses of independence, causality and asymmetric causality between credit and output. Using a sample of 103 banking crises around the world, we find that neither credit nor output takes precedence as a variable in calm and crisis periods, although there is evidence of instantaneous interdependence between the banking and real sector during crises. The results suggest that shocks propagate mostly within a year between the banking sector and the real economy. The linear link between credit growth and output growth is also regime dependent.

Date: 2012
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Working Paper: Banking crises and nonlinear linkages between credit and output (2008)
Working Paper: Banking crises and nonlinear linkages between credit and output (2007)
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DOI: 10.1080/00036846.2010.534064

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