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Modelling the demand for loans to the private sector in the Euro area

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Author Info
Alessandro Calza () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Christine Gartner () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Joao Sousa () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)

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Abstract

This paper studies the determinants of loans to the private sector in the euro area. Using the Johansen methodology, the study identifies one cointegrating relationship linking real loans, GDP and interest rates. This relationship implies that in the long-run real loans are positively related to real GDP and negatively to real short-term and long-term interest rates. Both the signs and the magnitude of the coefficients suggest that the cointegrating vector describes a long-run demand equation. The short-run dynamics of the demand for euro area real loans is subsequently modelled by means of a Vector Error Correction Model (VECM). A number of specification tests performed on the VECM produced satisfactory results, with tests of stability of the model’s parameters showing no signs of structural breaks during the sample period (1980 Q1 - 1999 Q2). All of this suggests that developments in real loans to the private sector in the euro area can be reasonably explained by the model. JEL Classification: C32; C51.

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Paper provided by European Central Bank in its series Working Paper Series with number 055.

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Length: 35 pages
Date of creation: Apr 2001
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Handle: RePEc:ecb:ecbwps:20010055

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Related research
Keywords: Credit demand; euro area; cointegration; error-correction model.;

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References listed on IDEAS
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