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Bank-specific shocks and aggregate leverage: Empirical evidence from a panel of developed countries

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  • Sleibi, Yacoub
  • Casalin, Fabrizio
  • Fazio, Giorgio

Abstract

This paper investigates the link between shocks in the banking sector and aggregate leverage measured by the credit-to-GDP gap. Using a balanced panel of 15 countries for the period 1989–2016, we exploit the approach due to Gabaix (2011) and consider banking granular shocks as an indicator of banking distress. Using methods that account for potential endogeneity, we find that banking shocks Granger-cause aggregate leverage. In particular, banking shocks tend to increase the level of leverage and cause departures of the credit-to-GDP ratio from its long-term trend.

Suggested Citation

  • Sleibi, Yacoub & Casalin, Fabrizio & Fazio, Giorgio, 2020. "Bank-specific shocks and aggregate leverage: Empirical evidence from a panel of developed countries," Journal of Financial Stability, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finsta:v:49:y:2020:i:c:s1572308920300218
    DOI: 10.1016/j.jfs.2020.100743
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    More about this item

    Keywords

    Banking shocks; Granularity model; Credit-to-GDP gap; Panel VAR; Granger causality;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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