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Has private sector credit in CESEE approached levels justified by fundamentals? A post-crisis assessment

Author

Listed:
  • Mariarosaria Comunale
  • Markus Eller

    () (Oesterreichische Nationalbank, Foreign Research Division)

  • Mathias Lahnsteiner

    () (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

We analyze private sector credit developments in CESEE EU countries by calculating the credit-to-GDP ratios that are in line with macroeconomic and financial fundamentals and by comparing them with actual levels. In contrast to previous work in this area, we add cross-border credit to domestic bank credit and take care of global factors and cross-country spillovers. We derive three main findings from our analysis: First, countries featuring positive credit gaps at the start of the global financial crisis (GFC) have managed to adjust their credit ratios downward toward levels justified by fundamentals, but the adjustment is apparently not yet complete in all countries. Second, in most countries characterized by credit levels close to or below the “fundamental” levels of credit at the start of the GFC, negative credit gaps have emerged or widened. Third, the inclusion of cross-border credit matters considerably for credit gap assessments as it results in larger gaps in most cases. As part of the policy discussion, we also relate our findings to recent efforts in setting countercyclical capital buffers depending on credit gaps.

Suggested Citation

  • Mariarosaria Comunale & Markus Eller & Mathias Lahnsteiner, 2018. "Has private sector credit in CESEE approached levels justified by fundamentals? A post-crisis assessment," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3-18, pages 141-154.
  • Handle: RePEc:onb:oenbfi:y:2018:i:q3-18:b:13
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    private sector credit; fundamental level of credit; bank lending; global financial crisis;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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