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A New Look into Credit Procyclicality: International Panel Evidence

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  • Ricardo Bebczuk

    (Central Bank of Argentina)

  • Tamara Burdisso

    ()
    (Central Bank of Argentina)

  • Jorge Carrera

    ()
    (Central Bank of Argentina)

  • Máximo Sangiácomo

    ()
    (Central Bank of Argentina)

Abstract

The 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.

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File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP_55_2011i.pdf
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Bibliographic Info

Paper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 201155.

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Length: 38 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:bcr:wpaper:201155

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Keywords: credit procyclicality; financial system; Granger causality; panel regressions;

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References

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  1. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, August.
  2. Christophe Hurlin & Baptiste Venet, 2008. "Financial Development and Growth: A Re-Examination using a Panel Granger Causality Test," Working Papers, HAL halshs-00319995, HAL.
  3. John C. Driscoll, 2003. "Does bank lending affect output? evidence from the U.S. states," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-31, Board of Governors of the Federal Reserve System (U.S.).
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  7. Bebczuk,Ricardo N., 2003. "Asymmetric Information in Financial Markets," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521793421.
  8. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  9. Heider, Florian & Gropp, Reint Eberhard, 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  11. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1450-1460.
  12. Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena, Department of Economics, University of Siena 523, Department of Economics, University of Siena.
  13. Reint Gropp & Florian Heider, 2010. "The Determinants of Bank Capital Structure," Review of Finance, European Finance Association, European Finance Association, vol. 14(4), pages 587-622.
  14. 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, Verein für Socialpolitik, vol. 10, pages 193-223, 05.
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Cited by:
  1. Castagnino, Tomás & D’Amato, Laura & Sangiácomo, Máximo, 2013. "How do firms in Argentina get financing to export?," Working Paper Series, European Central Bank 1601, European Central Bank.
  2. Espino, Freddy, 2013. "Hechos Estilizados del Sistema Bancario Peruano," Working Papers, Banco Central de Reserva del Perú 2013-005, Banco Central de Reserva del Perú.

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