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Credit Spreads and the Links between the Financial and Real Sectors in a Small Open Economy: The Case of the Czech Republic

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Listed author(s):
  • Tomas Konecny

    ()

    (University of Finance and Administration)

  • Oxana Babecka-Kucharcukova

    ()

    (Faculty of Finance and Accounting, University of Economics, Prague)

Abstract

Various approaches have been employed to explore the possibility of non-linear feedback between the real and financial sectors. The present study focuses on the impact of real shocks on selected financial sector indicators and the responses of the real economy to impulses emanating from the financial sector. We estimate a threshold Bayesian VAR with block restrictions and the credit spread as a threshold variable using the example of the Czech Republic. We find that while there is no evidence of asymmetric effects across positive and negative shocks, the responses of the financial sector to real shocks tend to differ below and above the credit spread threshold. Responses in the opposite direction (i.e. from the financial sector to the real economy) are pro-cyclical and similar irrespective of regime. A positive shock to credit and a negative shock to the NPL (non-performing loans) increase industrial production over the entire time horizon. The direct impact of foreign factors on lending seems to be rather limited.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 66 (2016)
Issue (Month): 4 (August)
Pages: 302-321

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Handle: RePEc:fau:fauart:v:66:y:2016:i:4:p:302-321
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Keywords: credit; small open economy; non-linearities; banking sector;

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Find related papers by JEL classification:
  • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
  • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
  • 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

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Cited by:

  1. repec:cnb:ocpubv:rb15/1 is not listed on IDEAS
  2. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek.

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