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How repayments manipulate our perceptions about loan dynamics after a boom

Author

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  • Adalid, Ramón
  • Falagiarda, Matteo

Abstract

We propose a method to decompose net lending flows into loan origination and repayments. We show that a boom in loan origination is transmitted to repayments with a very long lag, depressing the growth rate of the stock for many periods. In the euro area, repayments of the mortgage loans granted in the boom preceding the financial crisis have been dragging down net loan growth in recent years. This concealed an increasing dynamism in loan origination, especially during the last wave of ECB’s non-standard measures. Using loan origination instead of net loans has important implications for understanding macroeconomic developments. For instance, the robust developments in loan origination in recent times explain the strengthening in housing markets better than net loans. Moreover, credit supply restrictions during the crisis are estimated to be smaller. Overall, there is a premium on using loan origination and repayments in economic models, especially after large booms. JEL Classification: E17, E44, G01, D14

Suggested Citation

  • Adalid, Ramón & Falagiarda, Matteo, 2018. "How repayments manipulate our perceptions about loan dynamics after a boom," Working Paper Series 2211, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182211
    Note: 483719
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    Cited by:

    1. Jung, Alexander, 2020. "An empirical analysis of loan supply and demand in the euro area," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 187-201.
    2. Adalid Ramón & Falagiarda Matteo, 2020. "How Repayments Manipulate Our Perceptions about Loan Dynamics after a Boom," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(6), pages 697-742, December.
    3. Bove Guillaume & Dees Stéphane & Thubin Camille, 2020. "House Prices, Mortgage Debt Dynamics and Economic Fluctuations in France: A Semi-Structural Approach," Working papers 787, Banque de France.
    4. Gang Wang, 2019. "The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach," IJFS, MDPI, vol. 7(1), pages 1-30, February.
    5. Andreas Greiner & Katharina Steiner & Walter Waschiczek, 2019. "The recent upswing in corporate loan growth in Austria – a first risk assessment," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 38, pages 56-73.
    6. Miroslav Plasil, 2021. "Designing Macro-Financial Scenarios: The New CNB Framework and Satellite Models for Property Prices and Credit," Research and Policy Notes 2021/01, Czech National Bank.

    More about this item

    Keywords

    amortisation rate; housing markets; loan repayments; new lending;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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