The Italian financial cycle: 1861-2011

Riccardo De Bonis and Andrea Silvestrini

No 936, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper we investigate the main features of the Italian financial cycle, extracted by means of a structural trend-cycle decomposition of the credit-to-GDP ratio, using annual observations from 1861 to 2011. In order to draw conclusions based on solid historical data, we provide a thorough reconstruction of the key balance-sheet time series of Italian banks, considering all the main assets and liabilities over the last 150 years. We come to three main conclusions. First, while there was a close correlation between loans and deposits (relative to GDP) until the mid-1970s, over the last 30 years this link has become more tenuous, and the volume of loans has increased in relation to deposits. The banks have covered this �funding gap� mainly by issuing new debt securities. Second, the Italian financial cycle has a much longer duration than traditional business cycles. Third, taking into account the deviation of the credit-to-GDP ratio from its trend, an acceleration of credit preceded a banking crisis in 8 out of the 12 episodes listed by Reinhart and Rogoff (2009). A Logit regression confirms a positive association between the probability of a banking crisis and a previous acceleration of the credit-to-GDP gap. However, there were also periods - such as the early 1970s - in which the growth of the credit-to-GDP ratio was not followed by a banking crisis.

Keywords: banking system; credit-to-GDP ratio; financial cycle; unobserved components. (search for similar items in EconPapers)
JEL-codes: C22 C82 E32 E44 G01 N10 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ban, nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 0936/en_tema_936.pdf (application/pdf)

Related works:
Journal Article: The Italian financial cycle: 1861-2011 (2014)
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:bdi:wptemi:td_936_13

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().