Credit channels and consumption in Europe: empirical evidence

Gabe de Bondt

No 69, BIS Working Papers from Bank for International Settlements

Abstract: This paper studies the macroeconomic relevance of credit channels of monetary policy by examining the impact of the external finance premium (EFP), that may vary over the business cycle, on private consumption in Europe. A consumption model incorporates credit channels by assuming that liquidity-constrained consumers not only use current income for financing their consumption, but also external finance, which availability depends on the EFP. The empirical analysis shows an accelerator effect of the EFP on consumption for Germany, Italy and the Netherlands. In contrast, for France, the United Kingdom and Belgium no evidence in favour of this financial propagation mechanism has been found.

Pages: 30 pages
Date: 1999-06
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Citations: View citations in EconPapers (7)

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