Do credit shocks matter? A global perspective

Helbling, Thomas; Huidrom, Raju; Köse, M. Ayhan; Otrok, Christopher

doi:10.1016/j.euroecorev.2010.12.009

Cited by 169 publications

(130 citation statements)

References 51 publications

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“…It is worth highlighting that our findings are also in line with the empirical evidence of responses to a U.S. credit shock, where output and shortterm interest rates (the deposit rate can be seen as a proxy) move in the same direction as the credit shock (see, for example, Helbling, Huidrom, Kose, andOtrok, 2011 andXu, 2012). Our calibrated results show that the speed of convergence to equilibrium is slow for the credit shock (around 20 quarters), while the peak impacts of a credit shock on output and consumption are much larger than the effects of a typical technology shock.…”

Section: Productivitysupporting

confidence: 76%

“…Empirical evidence suggests that bank credit has played an important role in explaining the business-cycle dynamics of output growth, inflation and interest rates in advanced economies since the late 1970s. As shown in Helbling, Huidrom, Kose, and Otrok (2011), Bagliano and Morana (2012) and Xu (2012), a negative shock to U.S. real credit has significant adverse effects on output and interest rates in the United States, as well as in other advanced economies such as the euro area and the United Kingdom. The contraction in credit and the subsequent decline in output during the 2007-2009 crisis was coupled with a rise in the frequency of a firm's default.…”

Section: Introductionmentioning

confidence: 99%

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Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

Pesaran

2016

SSRN Journal

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This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. Firms are identical ex ante but differ ex post due to different realizations of firm-specific technology shocks, possibly leading to default by some firms. The paper advances a new modelling approach for the analysis of firm defaults and financial intermediation that takes account of the financial implications of such defaults for both households and banks. Results from a calibrated version of the model suggest that, in the steady state, a firm's default probability rises with its leverage ratio and the level of uncertainty in the economy. A positive credit shock, defined as a rise in the loan-todeposit ratio, increases output, consumption, hours and productivity, and reduces the spread between loan and deposit rates. The effects of the credit shock tend to be highly persistent, even without price rigidities and habit persistence in consumption behavior. JEL classification: E32, E44, G21 Bank classification: Business fluctuations and cycles; Economic models; Credit and credit aggregates; Financial institutions RésuméLes auteurs proposent un modèle théorique pour l'analyse de la relation entre les chocs de crédit, les défaillances d'entreprises et la volatilité, ainsi que pour l'étude des effets de ces chocs sur la dynamique du cycle économique. Dans ce modèle, des entreprises identiques ex ante se différencient ex post en réponse aux chocs technologiques réalisés, qui sont propres à chaque entreprise et peuvent provoquer sa défaillance. Le nouveau modèle employé par les auteurs pour examiner les défaillances des firmes et l'intermédiation financière tient compte des conséquences financières de ces défaillances à la fois sur les ménages et sur les banques. Les résultats tirés d'une version étalonnée du modèle indiquent qu'à l'équilibre de long terme, la probabilité de défaut d'une entreprise augmente avec son ratio de levier et le degré d'incertitude dans l'économie. Un choc de crédit positif -à savoir une hausse du ratio des prêts aux dépôts -accroît la production, la consommation, le nombre d'heures travaillées et la productivité et réduit l'écart entre le taux prêteur et le taux de rémunération des dépôts. Les retombées du choc de crédit tendent à perdurer longtemps même en l'absence de rigidité des prix et de persistance des habitudes de consommation.

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Section: Productivitysupporting

confidence: 76%

Section: Introductionmentioning

confidence: 99%

Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

Pesaran

2016

SSRN Journal

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“…a decoupling of business cycles, between different country groups. Inspired by these contributions, Eickmeier et al (2011), Helbling et al (2011 and others examine how financial shocks originating in the U.S. affect the common component of fluctua-tions in the G7 economies. All these contributions model macroeconomic aggregates but are silent about capital inflows.…”

Section: Related Literaturementioning

confidence: 99%

The dynamics of international capital flows: Results from a dynamic hierarchical factor model

Förster

Jorra

Tillmann

2014

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The present paper examines the degree of comovement of gross capital inflows, which is a highly sensitive issue for policy makers. We estimate a dynamic hierarchical factor model that is able to decompose inflows in a sample of 47 economies into (i) a global factor common to all types of flows and all recipient countries, (ii) a factor specific to a given type of capital inflows, (iii) a regional factor and (iv) a country-specific component. We find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors, which are particularly important for emerging markets' FDI and portfolio inflows as well as bank lending to emerging Europe. The global factor, however, explains only a small share of overall variation. The exposure to global drivers of capital flows, i.e. the global factor and the factor specific to each type of capital inflows, is particularly pronounced for countries with a more developed financial system. A fixed exchange rate regime does not shield countries from the ebb and flow of global capital flow cycles. Terms of use: Documents in

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“…Helbling et al, 2011;Hristov et al, 2012). Finally, the 1 In the Euro area retail rates play an important role in the transmission of monetary policy, since borrowing and lending take place predominantly through the intermediation of the banking sector, contrary to some major economies where securities markets are the main funding source of the real sector.…”

Section: Introductionmentioning

confidence: 99%

The interest rate pass-through in the Euro area during the global financial crisis

Hristov¹,

Hülsewig²,

Wollmershäuser³

2014

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Interest Rate Pass-Through in the Euro Area During the Global Financial Crisis Abstract This paper uses panel vector autoregressive models and simulations of an estimated DSGE model to explore the reaction of Euro-area banks to the global financial crisis. We focus on their interest-rate setting behavior in response to standard macroeconomic shocks. Our main empirical finding is that the pass-through from changes in the money market rate to retail bank rates became significantly less complete during the crisis. Model simulations show that this result can be well explained by a significant increase in the frictions that the banks' business is subject to. Terms of use: Documents in EconStor mayJEL-Code: E400, E430, E520.

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Do credit shocks matter? A global perspective

Cited by 169 publications

References 51 publications

Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

The dynamics of international capital flows: Results from a dynamic hierarchical factor model

The interest rate pass-through in the Euro area during the global financial crisis

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