Economic Activity and Credit Market Linkages: New Evidence from Italy

Vincenzo Chiorazzo (), V. D’Apice, P. Morelli and Giovanni Puopolo
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V. D’Apice: Italian Banking Association
P. Morelli: Italian Banking Association
Authors registered in the RePEc Author Service: Vincenzo D'Apice

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We investigate the interactions between the business cycle and credit markets in Italy, focusing on how macroeconomic shocks affect the banking sector (i.e. the real effect) and in turn how the financial system’s reaction influences the economic activity (i.e. the feedback effect). We find evidence of both effects, with the former conveyed primarily by the creditworthiness of large firms. Moreover, using data from the Bank Lending Survey provided by the ECB, we disentangle credit supply shocks due to factors inside the banking sector (the bank lending channel), from those outside the banking sector (the borrower’s balance-sheet channel), finding that both types of shocks have a significant impact on the real economy. Our results have far reaching implications for financial stability.

Keywords: Real effect; Feedback effect; Bank Lending Channel; Balance-Sheet Channel; VAR; Business Cycle (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2015-09-20
New Economics Papers: this item is included in nep-cfn and nep-mac
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Forthcoming in Economic Notes

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Journal Article: Economic Activity and Credit Market Linkages: New Evidence From Italy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:413

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