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From Subprime Loans to Subprime Growth? Evidence for the Euro Area
Author: Mr. Martin Cihakhttps://orcid.org/0000-0002-3571-9707 and Ms. Petya Koeva Brooks
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 069
Language:
English
Publication Date:
01 Mar 2009
DOI:
https://doi.org/10.5089/9781451872163.001
ISBN:
9781451872163
ISSN:
1018-5941
Pages:
35
Keywords:
WP; lending; bank; demand shock; euro; Euro area; financial sector; real sector; linkages; contingent claims approach; money demand demand shock; bank loan supply; lending standard; demand and supply; financing condition; Bank credit; Credit; Loans; Corporate bonds; Demand for money; Global; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a cutback in bank loan supply has a negative impact on economic activity; (iii) a positive shock to the corporate bond spread lowers industrial output; and (iv) risk indicators for the banking, corporate, and public sectors show an improvement beginning in 2002–03, followed by a major deterioration since 2007. These estimates imply that the currently estimated bank losses would subtract some 2 percentage points from the euro area output (but with considerable uncertainty around the estimates).
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund