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On the Link Between Credit Procyclicality and Bank Competition

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  • Vincent Bouvatier
  • Antonia Lopez-Villavicencio
  • Valérie Mignon

Abstract

This paper investigates the relationship between bank competition and credit procyclicality for 17 OECD countries on the 1986-2009 period. We account for heterogeneity among countries in terms of bank competition through the use of a hierarchical clustering methodology. We then estimate panel VAR models for the identified sub-groups of economies to investigate whether credit procyclicality is more important when the degree of bank competition is high. Our findings show that while credit significantly responds to shocks to GDP, the degree of bank competition is not essential in assessing the procyclicality of credit for OECD countries.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2010-25.

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Date of creation: Nov 2010
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Handle: RePEc:cii:cepidt:2010-25

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Keywords: Credit cycle; Economic cycle; Bank competition; Financial stability; Panel VAR;

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  1. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  2. Katrin Assenmacher-Wesche & Stefan Gerlach, 2008. "Financial Structure and the Impact of Monetary Policy on Asset Prices," Working Papers 2008-16, Swiss National Bank.
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