Modelling Loans to Non-Financial Corporations in the Eurozone: A Long-Memory Approach

This paper uses fractional integration and cointegration methods to analyze the long-run relationship between loans to non-financial corporations, real gross domestic product, real gross fixed capital formation, the cost of borrowing differential between long- and short-term rates, and a proxy for the cost of debt, securities, and equity issuance. The analysis includes four Eurozone countries, namely Germany, France, Italy, and Spain, and spans the most recent decades. More precisely, fractional integration and cointegration models are estimated to investigate the persistence of the series as well as their long-run relationships and short-run dynamics using both unrestricted and restricted specifications. The univariate results are heterogeneous, the highest degrees of integration being found in the case of loans to non-financial corporations, whilst the multivariate ones provide evidence of a single fractional cointegration vector as well as of a lower adjustment speed to the long-run equilibrium compared to previous studies in all four countries. Moreover, both the short- and long-run response of loans to exogenous shocks to real gross domestic product and the cost of borrowing differentials differs across countries because of country-specific factors.