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Banking crises and nonlinear linkages between credit and output

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  • Dobromił Serwa

Abstract

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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  • Dobromił Serwa, 2011. "Banking crises and nonlinear linkages between credit and output," Applied Economics, Taylor & Francis Journals, vol. 44(8), pages 1025-1040, March.
    • Handle: RePEc:taf:applec:v:44:y:2011:i:8:p:1025-1040
    DOI: 10.1080/00036846.2010.534064
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