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Banking crises and nonlinear linkages between credit and output

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Serwa, Dobromił

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Abstract

The paper employs a recently developed procedure, based on a bivariate Markov switching model, to analyze the asymmetric causality linkages between credit growth and output growth during banking crises. Using a sample of 103 banking crises, we find that neither credit nor output leads the other variable in calm and crisis periods, although there is evidence of instantaneous regime-interdependence between the banking and real sector during crises. The linear link between credit growth and output growth is also regime-dependent.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5946.

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Date of creation: 26 Nov 2007
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Handle: RePEc:pra:mprapa:5946

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Related research
Keywords: banking crises; credit growth; output growth; Markov switching model; causality;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  1. Phillips, Kerk L., 1991. "A two-country model of stochastic output with changes in regime," Journal of International Economics, Elsevier, vol. 31(1-2), pages 121-142, August. [Downloadable!] (restricted)
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    Other versions:
  3. Granger, C. W. J., 1980. "Testing for causality : A personal viewpoint," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 329-352, May. [Downloadable!] (restricted)
  4. Martin Sola & Fabio Spagnolo & Nicola Spagnolo, 2002. "A Test for Volatility Spillovers," Economics and Finance Discussion Papers 02-04, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
    Other versions:
  5. Bialkowski, Jedrzej & Bohl, Martin T. & Serwa, Dobromil, 2006. "Testing for financial spillovers in calm and turbulent periods," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 397-412, July. [Downloadable!] (restricted)
  6. Michael Hutchison & Ilan Noy, 2002. "How bad are twins? output costs of currency and banking crises," Pacific Basin Working Paper Series 02-02, Federal Reserve Bank of San Francisco. [Downloadable!]
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  7. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June. [Downloadable!] (restricted)
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  9. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August. [Downloadable!] (restricted)
    Other versions:
  10. Galbraith, John W, 1996. "Credit Rationing and Threshold Effects in the Relation between Money and Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 419-29, July-Aug.. [Downloadable!] (restricted)
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  13. McCallum, John, 1991. "Credit Rationing and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 81(4), pages 946-51, September. [Downloadable!] (restricted)
  14. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany. [Downloadable!]
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  15. Ravn, Morten O. & Sola, Martin, 1995. "Stylized facts and regime changes: Are prices procyclical?," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 497-526, December. [Downloadable!] (restricted)
  16. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 359-406, 02. [Downloadable!] (restricted)
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  17. Blinder, Alan S, 1987. "Credit Rationing and Effective Supply Failures," Economic Journal, Royal Economic Society, vol. 97(386), pages 327-52, June. [Downloadable!] (restricted)
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  18. Robert Breunig & Serinah Najarian & Adrian Pagan, 2003. "Specification Testing of Markov Switching Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 703-725, December. [Downloadable!] (restricted)
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