A New Look into Credit Procyclicality: International Panel Evidence
The goal of this paper is to provide up-to-date worldwide evidence on the short-term relationship between credit changes and output changes. Standard correlation methods, state of-the-art panel Granger causality tests, and panel regressions were applied on a maximum sample of 144 countries over the period 1990-2007. Our results openly clash with two popular economic statements, namely, that credit is procyclical and that changes in credit have strong effects on private expenditure. According to the evidence produced, credit procyclicality -in the sense that the simple correlation coefficient is positive and significant at 10% or less- prevails in just 45% of the countries when annual data are used (23% with quarterly data). As for time precedence, our work suggests that, for the full sample, Granger causality runs from GDP to credit, while the often claimed causality from credit to GDP is a feature observable much less frequently –this behavior is observed only in financially developed countries. Results are robust to random resampling. Furthermore, after considering the potential presence of endogeneity, we contend that our results uncover not just mere Granger causality but economic causality. All in all, these findings have vast academic and policy implications.
|Date of creation:||Oct 2011|
|Contact details of provider:|| Postal: Reconquista 266 - C1003ABF - Buenos Aires|
Phone: (54-11) 4348-3582
Fax: (54-11) 4348-3794
Web page: http://www.bcra.gov.ar
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Henderson, Brian J. & Jegadeesh, Narasimhan & Weisbach, Michael S., 2006.
"World markets for raising new capital,"
Journal of Financial Economics,
Elsevier, vol. 82(1), pages 63-101, October.
- World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Tom Doan, "undated". "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena 523, Department of Economics, University of Siena.
- Christophe Hurlin & Baptiste Venet, 2008. "Financial Development and Growth: A Re-Examination using a Panel Granger Causality Test," Working Papers halshs-00319995, HAL.
- Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012.
"Testing for Granger non-causality in heterogeneous panels,"
Elsevier, vol. 29(4), pages 1450-1460.
- Elena Ivona Dumitrescu & Christophe Hurlin, 2012. "Testing for Granger Non-causality in Heterogeneous Panels," Post-Print hal-01385899, HAL.
- Christophe Hurlin & Elena Dumitrescu, 2012. "Testing for Granger Non-causality in Heterogeneous Panels," Working Papers halshs-00224434, HAL.
- Eickmeier, Sandra & Hofmann, Boris & Worms, Andreas, 2006.
"Macroeconomic fluctuations and bank lending: evidence for Germany and the euro area,"
Discussion Paper Series 1: Economic Studies
2006,34, Deutsche Bundesbank, Research Centre.
- Sandra Eickmeier & Boris Hofmann & Andreas Worms, 2009. "Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 10, pages 193-223, 05.
- Driscoll, John C., 2004.
"Does bank lending affect output? Evidence from the U.S. states,"
Journal of Monetary Economics,
Elsevier, vol. 51(3), pages 451-471, April.
- John C. Driscoll, 2003. "Does bank lending affect output? evidence from the U.S. states," Finance and Economics Discussion Series 2003-31, Board of Governors of the Federal Reserve System (U.S.).
- Heider, Florian & Gropp, Reint, 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers 08-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Reint Gropp & Florian Heider, 2010.
"The Determinants of Bank Capital Structure,"
Review of Finance,
European Finance Association, vol. 14(4), pages 587-622.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, .
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- Bebczuk,Ricardo N., 2003.
"Asymmetric Information in Financial Markets,"
Cambridge University Press, number 9780521797320, December.
- J.A. Bikker & H. Hu, 2003. "Cyclical Patterns in Profits, Provisioning and Lending of Banks," DNB Staff Reports (discontinued) 86, Netherlands Central Bank.
When requesting a correction, please mention this item's handle: RePEc:bcr:wpaper:201155. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Grillo)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.