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The real effects of banking shocks: Evidence from OECD countries

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  • Levintal, Oren

Abstract

This paper studies the impact of shocks to banks’ balance sheets on real economic activity. The sample consists of 18 OECD countries observed annually from 1979 to 2003. Using the Rajan–Zingales method, I find that industries that depend more heavily on external finance respond more strongly to bank income shocks, suggesting that banking shocks propagate to the real economy. The bank effect lasts for 2 years, but it is economically significant mainly for large shocks, which are relatively rare. Similar findings are obtained by comparing durable versus non-durable goods and by estimating aggregate bank effects.

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  • Levintal, Oren, 2013. "The real effects of banking shocks: Evidence from OECD countries," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 556-578.
    • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:556-578
    DOI: 10.1016/j.jimonfin.2012.05.028
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    2. Michael, Bryane & Zhao, Simon, 2016. "Bubble Economics How Big a Shock to China’s Real Estate Sector Will Throw the Country into Recession, and Why Does It Matter?," EconStor Preprints 141314, ZBW - Leibniz Information Centre for Economics.
    3. Igan, Deniz & Mirzaei, Ali, 2020. "Does going tough on banks make the going get tough? Bank liquidity regulations, capital requirements, and sectoral activity," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 688-726.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    5. Ms. Deniz O Igan & Ali Mirzaei & Tomoe Moore, 2018. "How Do Regulations of Entry and Credit Access Relate to Industry Competition? International Evidence," IMF Working Papers 2018/084, International Monetary Fund.
    6. Ma, Yu & Zhang, Yang & Ji, Qiang, 2021. "Do oil shocks affect Chinese bank risk?," Energy Economics, Elsevier, vol. 96(C).
    7. Al-Khazali, Osamah M. & Mirzaei, Ali, 2017. "The impact of oil price movements on bank non-performing loans: Global evidence from oil-exporting countries," Emerging Markets Review, Elsevier, vol. 31(C), pages 193-208.
    8. Igan, Deniz & Mirzaei, Ali & Moore, Tomoe, 2023. "A shot in the arm: Economic support packages and firm performance during COVID-19," Journal of Corporate Finance, Elsevier, vol. 78(C).
    9. Dimitrios Asteriou & Keith Pilbeam & Antonios Sarantidis, 2019. "The Behaviour of Banking Stocks During the Financial Crisis and Recessions. Evidence from Changes‐in‐Changes Panel Data Estimations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 154-179, February.
    10. Deniz Igan & Ali Mirzaei & Tomoe Moore, 2022. "A shot in the arm: stimulus packages and firm performance during Covid-19," BIS Working Papers 1014, Bank for International Settlements.

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    More about this item

    Keywords

    Bank ROA; Bank capital; Bank reserves; Business cycle; External finance; Banking crisis; Bank lending channel; Financial accelerators; Rajan–Zingales; Reverse causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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