The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model

Hamza Bennani, Jan Pablo Burgard and Matthias Neuenkirch
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Jan Pablo Burgard: Uni Trier - Trier Universität = Trier University = Université de Trèves

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Abstract: We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states, using an underlying logit model determining the relative state weights over time. We show that a widening of the credit spread and a tightening of credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are less important in explaining growth fluctuations. The credit spread and—to some extent—credit standards are also the key determinants of the underlying state of the economy; the prevalence of the crisis state is more pronounced in times of adverse credit conditions. Together with a stronger shock transmission in the crisis state, this provides further evidence for a financial accelerator in the euro area.

Keywords: Credit growth; credit spread; credit standards; euro area; financial accelerator; mixture VAR; monetary policy transmission (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
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Published in Macroeconomic Dynamics, 2023, 27, pp.1893-1931. ⟨10.1017/S1365100522000517⟩

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Related works:
Journal Article: The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2023)
Working Paper: The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2021)
Working Paper: The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2020)
Working Paper: The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2020)
Working Paper: The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04145813

DOI: 10.1017/S1365100522000517

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