A New Look into Credit Procyclicality: International Panel Evidence
AbstractThe goal of this paper is to provide up-to-date worldwide evidence on the short-term relationship between credit changes and output changes. Standard correlation methods, state of-the-art panel Granger causality tests, and panel regressions were applied on a maximum sample of 144 countries over the period 1990-2007. Our results openly clash with two popular economic statements, namely, that credit is procyclical and that changes in credit have strong effects on private expenditure. According to the evidence produced, credit procyclicality -in the sense that the simple correlation coefficient is positive and significant at 10% or less- prevails in just 45% of the countries when annual data are used (23% with quarterly data). As for time precedence, our work suggests that, for the full sample, Granger causality runs from GDP to credit, while the often claimed causality from credit to GDP is a feature observable much less frequently –this behavior is observed only in financially developed countries. Results are robust to random resampling. Furthermore, after considering the potential presence of endogeneity, we contend that our results uncover not just mere Granger causality but economic causality. All in all, these findings have vast academic and policy implications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 201155.
Length: 38 pages
Date of creation: Oct 2011
Date of revision:
credit procyclicality; financial system; Granger causality; panel regressions;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
- NEP-BAN-2012-05-15 (Banking)
- NEP-CBA-2012-05-15 (Central Banking)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reint Gropp & Florian Heider, 2010.
"The Determinants of Bank Capital Structure,"
Review of Finance,
European Finance Association, vol. 14(4), pages 587-622.
- Heider, Florian & Gropp, Reint Eberhard, 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers 08-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Bebczuk,Ricardo N., 2003.
"Asymmetric Information in Financial Markets,"
Cambridge University Press, number 9780521797320.
- World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, March.
- Brian J. Henderson & Narasimhan Jegadeesh & Michael S. Weisbach, 2004.
"World Markets for Raising New Capital,"
NBER Working Papers
10225, National Bureau of Economic Research, Inc.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- J.A. Bikker & H. Hu, 2003. "Cyclical Patterns in Profits, Provisioning and Lending of Banks," DNB Staff Reports (discontinued) 86, Netherlands Central Bank.
- Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012.
"Testing for Granger non-causality in heterogeneous panels,"
Elsevier, vol. 29(4), pages 1450-1460.
- Christophe Hurlin & Elena Dumitrescu, 2012. "Testing for Granger Non-causality in Heterogeneous Panels," Working Papers halshs-00224434, HAL.
- Sandra Eickmeier & Boris Hofmann & Andreas Worms, 2009.
"Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area,"
German Economic Review,
Verein für Socialpolitik, vol. 10, pages 193-223, 05.
- Eickmeier, Sandra & Hofmann, Boris & Worms, Andreas, 2006. "Macroeconomic fluctuations and bank lending: evidence for Germany and the euro area," Discussion Paper Series 1: Economic Studies 2006,34, Deutsche Bundesbank, Research Centre.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Christophe Hurlin & Baptiste Venet, 2008. "Financial Development and Growth: A Re-Examination using a Panel Granger Causality Test," Working Papers halshs-00319995, HAL.
- Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena 523, Department of Economics, University of Siena.
- Espino, Freddy, 2013. "Hechos Estilizados del Sistema Bancario Peruano," Working Papers 2013-005, Banco Central de Reserva del Perú.
- Tomás Castagnino & Laura D´Amato & Máximo Sangiácomo, 2012.
"How do Firms in Argentina get Financing to Export?,"
BCRA Working Paper Series
201258, Central Bank of Argentina, Economic Research Department.
- Castagnino, Tomás & D’Amato, Laura & Sangiácomo, Máximo, 2013. "How do firms in Argentina get financing to export?," Working Paper Series 1601, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Grillo).
If references are entirely missing, you can add them using this form.