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Does uncertainty matter for private credit convergence?

Author

Listed:
  • Can Xu

    (Postdoctoral Research Station at China Merchants Group
    University of Groningen)

  • Andreas Steiner

    (University of Groningen
    RheinMain University of Applied Sciences, Wiesbaden Business School
    CESifo)

  • Jakob Haan

    (University of Groningen
    CESifo)

Abstract

This paper investigates the convergence of private credit and examines how uncertainty influences this convergence process. Based on a neoclassical growth model, we show that economic uncertainty affects the speed of convergence of private credit to its steady state. Utilizing data spanning from 1950–2019 and including 159 economies, we present empirical evidence that aggregate private credit and its components, i.e., household and (non-financial) firm credit, relative to GDP or working-age population, converge across economies over time. However, the process of private credit convergence is slowed down significantly by economic uncertainty measured by the uncertainty index proposed by Ahir et al. (2022).

Suggested Citation

  • Can Xu & Andreas Steiner & Jakob Haan, 2025. "Does uncertainty matter for private credit convergence?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(3), pages 1071-1112, August.
    • Handle: RePEc:spr:weltar:v:161:y:2025:i:3:d:10.1007_s10290-024-00562-4
    DOI: 10.1007/s10290-024-00562-4
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    Keywords

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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