Supply tightening or lack of demand? An analysis of credit developments during the Lehman Brothers and the sovereign debt crises
Paolo Del Giovane (paolo.delgiovane@bancaditalia.it),
Andrea Nobili and
Federico Signoretti
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Paolo Del Giovane: Bank of Italy
No 942, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
Abstract:
We estimate a structural econometric model for the credit market in Italy, using bank-level information and the responses of Italian banks to the euro-area Bank Lending Survey to identify demand and supply, focusing on the recent financial crisis. The main results are the following. First, while in normal circumstances the functioning of the Italian credit market is consistent with a standard imperfect-competition model, during phases of high tension there are credit-rationing phenomena. Second, supply restrictions have a relevant impact on lending, both when they are due to banks� balance-sheet constraints and when they are the effect of greater perceived borrower riskiness. Third, to a large extent the tightening during the sovereign debt crisis reflected the common shock of the widening sovereign spread, not idiosyncratic bank funding problems. Fourth, the role of supply was stronger during the sovereign than the global financial crisis, mainly due to greater banks� funding difficulties. In a counterfactual exercise we estimate that in the second quarter of 2012 interest rates were more than 2 percentage points higher and the stock of loans more than 8 percent lower than would have been the case without the tightening of lending standards in the course of the entire crisis.
Keywords: credit rationing; supply tightening; financial crisis; sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: E30 E32 E51 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Assessing the Sources of Credit Supply Tightening: Was the Sovereign Debt Crisis Different from Lehman? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_942_13
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