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Financial conditions and economic activity: the potential impact of the targeted long-term refinancing operations (TLTROs)

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  • Hiona Balfoussia
  • Heather D. Gibson

Abstract

This article explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al. 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the targeted long-term refinancing operations (TLTROs) on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity, and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.

Suggested Citation

  • Hiona Balfoussia & Heather D. Gibson, 2016. "Financial conditions and economic activity: the potential impact of the targeted long-term refinancing operations (TLTROs)," Applied Economics Letters, Taylor & Francis Journals, vol. 23(6), pages 449-456, April.
  • Handle: RePEc:taf:apeclt:v:23:y:2016:i:6:p:449-456
    DOI: 10.1080/13504851.2015.1080799
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    References listed on IDEAS

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    1. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
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    Cited by:

    1. repec:taf:apeclt:v:26:y:2019:i:2:p:104-110 is not listed on IDEAS
    2. Laine, Olli-Matti, 2019. "The effect of TLTRO-II on bank lending," Research Discussion Papers 7/2019, Bank of Finland.
    3. Hiona Balfoussia & Heather D. Gibson, 2019. "Firm investment and financial conditions in the euro area: evidence from firm-level data," Applied Economics Letters, Taylor & Francis Journals, vol. 26(2), pages 104-110, January.
    4. Simone Auer, 2017. "A Financial Conditions Index for the CEE economies," Temi di discussione (Economic working papers) 1145, Bank of Italy, Economic Research and International Relations Area.
    5. Costas Karfakis & Eftychia Karfaki, 2018. "Is the financial cycle a leading indicator of real output during expansions and contractions? A quantile analysis for Greece," Discussion Paper Series 2018_02, Department of Economics, University of Macedonia, revised Feb 2018.
    6. António Afonso & Joana Sousa-Leite, 2019. "The transmission of unconventional monetary policy to bank credit supply: evidence from the TLTRO," Working Papers w201901, Banco de Portugal, Economics and Research Department.
    7. Desislava C. Andreeva & Miguel García-Posada, 2019. "The impact of the ECB’s targeted long-term refinancing operations on banks’ lending policies: the role of competition," Working Papers 1903, Banco de España;Working Papers Homepage.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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