The impact of credit supply shocks and a new Financial Conditions Index based on a FAVAR approach

Hosszú, Zsuzsanna

doi:10.1016/j.ecosys.2017.05.007

Cited by 6 publications

(2 citation statements)

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“…Acta Oeconomica 66 (2016) Tamási -Világi (2011) and Hosszú et al (2013) estimated a Bayesian VAR model for the Hungarian economy and applied sign restrictions to identify macroeconomic and credit supply shocks. Assuming that different types of credit supply shocks might require different policy responses, they analysed the effect of changing risk assessment of financial institutions as well as that of changing regulatory requirements (credit spread shock).…”

Section: Top-down Approach Ie Estimations Using Aggregated Datamentioning

confidence: 99%

A counterfactual analysis of regulatory changes in Hungary: Could the FX lending crisis have been avoided?

Siklós¹

2016

Acta Oeconomica

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DÓRA SIKLÓSThe main purpose of this paper is twofold. First, it aims to estimate the effect of the tightening of regulatory capital requirements on the real economy in periods of credit upswing. Second, it intends to show whether applying a counter-cyclical capital buffer measure as set down in the Basel III rules could have helped to reduce the pace of FX lending growth in Hungary, mitigating the buildup of vulnerabilities in the run-up to the global fi nancial crisis. In order to answer these questions, we use a Vector Autoregression-based approach with the aim of understanding the impact of shocks to capital adequacy in the pre-crisis period. Our results suggest that although regulatory authorities could have slowed down the increase in lending temporarily, they would not have been able to avoid the upswing of FX lending by requiring counter-cyclical capital buffers even if such a tool had been available and even if they had reacted quickly to accelerating credit growth. Our results also suggest that a more pronounced tightening might have reduced FX lending substantially, but at the expense of real GDP growth. The reason is that unsustainable fi scal policy led to a trade-off between economic growth and the build-up of new vulnerabilities in the form of FX lending. JEL classifi cation indices: E58, G01, G21, G28

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