The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model
Hamza Bennani,
Jan Pablo Burgard and
Matthias Neuenkirch
No 2020-08, Working Paper Series from University of Trier, Research Group Quantitative Finance and Risk Analysis
Abstract:
We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1-2019Q4 with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states 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 in the logit submodel; the prevalence of the crisis state is more pronounced in times of adverse credit conditions. Together with a stronger transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit conditions is also reflected in the labor market.
Keywords: Credit growth; credit spread; credit standards; euro area; financial accelerator; mixture VAR; monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G21 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)
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https://www.uni-trier.de/fileadmin/fb4/prof/BWL/FI ... s/QFRA_20_08__4_.pdf Fourth version, 2022 (application/pdf)
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 (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) 
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Persistent link: https://EconPapers.repec.org/RePEc:trr:qfrawp:202008
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