On The Determinants of Credit Crunch in Italy: An Empirical Analysis on the Reasons Underlying This Phenomenon

The purpose of this paper is to investigate whether a credit crunch occurred in Italy during the recent financial crisis and to analyze the underlying factors. In order to disentangle credit supply and demand we specify a theory-based on the time series model of the Italian credit market. After discussing the contributions of the economic literature on the phenomenon of the credit crunch and analyzed the case of Italy, we have developed an empirical analysis of an econometric model. In particular, starting from the contribution of Schmidt and Zwick (2012) regress each independent variable considered in the model based on the results of the correlogram, we will apply the logarithmic first differences and enrich the model through the use of the Kalman’ filter. As regards the demand side we have that the gross domestic product and the volume of loans issued in the quarter prior to the quarter analyzed are the most significant variables in determining the demand for credit; instead, with regard to supply, we have that the variables that most influence this component of the credit market are past the volume of credit and the differential between the interest rates.