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The Role of Credit in International Business Cycles

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  • TengTeng Xu

Abstract

This paper examines the role of bank credit in modeling and forecasting business cycle fluctuations, and investigates the international transmission of US credit shocks, using a global vector autoregressive (GVAR) framework and associated country-specific error correction models. The paper constructs and compiles a dataset on bank credit for 33 advanced and emerging market economies from 1979Q1 to 2009Q4. The empirical results suggest that the incorporation of credit provides significant improvement in modeling and forecasting output growth, changes in inflation and long run interest rates, for countries with developed banking sector. Impulse response analysis provide strong evidence of the international spillover of US credit shocks to the UK, the Euro area, Japan and other industrialized economies, and the propagation to the real economy.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 12-36.

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Length: 55 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bca:bocawp:12-36

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Keywords: Business fluctuations and cycles; Credit and credit aggregates; Econometric and statistical methods; International financial markets;

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Cited by:
  1. Ambrogio Cesa-Bianchi & M. Hashem Pesaran & Alessandro Rebucci & TengTeng Xu, 2011. "China's Emergence in the World Economy and Business Cycles in Latin America," IDB Publications 44738, Inter-American Development Bank.
  2. Milcheva, Stanimira, 2013. "Cross-country effects of regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5329-5345.

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