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

Hamza Bennani, Jan Pablo Burgard and Matthias Neuenkirch

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

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 shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are slightly 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. Together with a more pronounced 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)
Date: 2021
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-mac and nep-mon
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https://www.econstor.eu/bitstream/10419/242327/1/vfs-2021-pid-48367.pdf (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 (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:zbw:vfsc21:242327

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