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Macroeconomic consequences of different types of credit market disturbances and non-conventional monetary policy in the euro area

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  • Gert Peersman

    (Ghent University)

Abstract

I estimate the effects of different types of credit market disturbances on the euro area economy since the introduction of the euro, i.e. exogenous credit demand shocks, innovations to the credit multiplier (e.g. shocks to risk taking by banks, securitization or financial innovations such as credit risk transfer instruments) and monetary policy shocks. In a second step, monetary policy shocks are further decomposed into traditional interest rate innovations and non-conventional policy actions. Overall, the macroeconomic relevance is considerable. Credit market disturbances account together for more than half of output variation and up to 75 percent of long-run inflation variability. The majority of these effects are driven by shocks to the credit multiplier. I further show that the dynamic effects crucially depend on the underlying source of the disturbance. Whereas surges in credit caused by innovations to the credit multiplier have a significant positive impact on economic activity and inflation, exactly the opposite is the case for exogenous credit demand shocks. Finally, both types of monetary policy instruments can influence the economy. The ultimate consequences on output and consumer prices are however more sluggish for non-standard policy measures, and the transmission mechanism via financial institutions - very likely the risk-taking channel - is different.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 333.

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Date of creation: 2011
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Handle: RePEc:red:sed011:333

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  1. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Bank of England working papers, Bank of England 272, Bank of England.
  2. Adrian, Tobias & Song Shin, Hyun, 2010. "Financial Intermediaries and Monetary Economics," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 12, pages 601-650 Elsevier.
  3. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, University of Manchester, vol. 78(s1), pages 53-89, 09.
  4. John B. Taylor & John C. Williams, 2008. "A black swan in the money market," Working Paper Series, Federal Reserve Bank of San Francisco 2008-04, Federal Reserve Bank of San Francisco.
  5. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series, European Central Bank 0091, European Central Bank.
  6. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(6), pages 1131-1159, September.
  7. Simon Gilchrist & Vladimir Yankov & Egon Zakrajsek, 2009. "Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets," NBER Working Papers 14863, National Bureau of Economic Research, Inc.
  8. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring monetary policy," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 95-09, Federal Reserve Bank of San Francisco.
  9. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  10. Den Haan, Wouter & Sumner, Steven & Yamashiro, Guy, 2004. "Banks' Loan Portfolio and the Monetary Transmission Mechanism," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4725, C.E.P.R. Discussion Papers.
  11. Renee Fry & Adrian Pagan, 2007. "Some Issues in Using Sign Restrictions for Identifying Structural VARs," NCER Working Paper Series, National Centre for Econometric Research 14, National Centre for Econometric Research.
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  13. Domenico Giannone & Michèle Lenza & Lucrezia Reichlin, 2012. "Money, Credit, Monetary Policy and the Business Cycle in the Euro Area," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2012-008, ULB -- Universite Libre de Bruxelles.
  14. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2014. "Do Central Bank Liquidity Facilities Affect Interbank Lending Rates?," Journal of Business & Economic Statistics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(1), pages 136-151, January.
  15. Lenza, Michele & Pill, Huw & Reichlin, Lucrezia, 2010. "Monetary policy in exceptional times," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7669, C.E.P.R. Discussion Papers.
  16. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 435-39, May.
  17. Ciccarelli, Matteo & Peydró, José-Luis & Maddaloni, Angela, 2010. "Trusting the bankers: a new look at the credit channel of monetary policy," Working Paper Series, European Central Bank 1228, European Central Bank.
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Cited by:
  1. Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Munich Reprints in Economics, University of Munich, Department of Economics 19757, University of Munich, Department of Economics.
  2. Eickmeier, Sandra & Gambacorta, Leonardo & Hofmann, Boris, 2013. "Understanding global liquidity," Discussion Papers 03/2013, Deutsche Bundesbank, Research Centre.
  3. Eickmeier, Sandra & Ng, Tim, 2011. "How Do Credit Supply Shocks Propagate Internationally? A GVAR approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8720, C.E.P.R. Discussion Papers.
  4. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 102, Bank of Italy, Economic Research and International Relations Area.

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