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Banking crises and nonlinear linkages between credit and output

  • Dobromił Serwa

In this article, we analyse the asymmetric causality linkages between credit growth and output growth during banking crises. We employ a recently developed procedure, based on a bivariate Markov switching model, to test the hypotheses of independence, causality and asymmetric causality between credit and output. Using a sample of 103 banking crises around the world, we find that neither credit nor output takes precedence as a variable in calm and crisis periods, although there is evidence of instantaneous interdependence between the banking and real sector during crises. The results suggest that shocks propagate mostly within a year between the banking sector and the real economy. The linear link between credit growth and output growth is also regime dependent.

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File URL: http://hdl.handle.net/10.1080/00036846.2010.534064
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 8 (March)
Pages: 1025-1040

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Handle: RePEc:taf:applec:44:y:2012:i:8:p:1025-1040
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