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Bank-Specific Shocks and the Real Economy

  • Claudia M. Buch
  • Katja Neugebauer

Government interventions into the financial system in the form of bail out operations or liquidity assistance are often justified with the systemic importance of large banks for the real economy. In this paper, we test whether idiosyncratic shocks to loan growth at large banks have effects on real GDP growth. We employ a measure of idiosyncratic shocks which follows Gabaix (2009). He shows that idiosyncratic shocks at large firms have an impact on GDP growth in the US. We apply this idea to the banking sector. We find evidence that changes in lending by large banks have a significant impact on GDP growth. This effect is mostly driven by episodes of negative loan growth rates and by the Eastern European countries in our sample.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.412876.de/diw_finess_02030.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Working Paper / FINESS with number 2.3.

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Length: 21 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwfin:diwfin2.3
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  1. Giovanni Dell'Ariccia & Raghuram Rajan & Enrica Detragiache, 2005. "The Real Effect of Banking Crises," IMF Working Papers 05/63, International Monetary Fund.
  2. Blank, Sven & Buch, Claudia M. & Neugebauer, Katja, 2009. "Shocks at large banks and banking sector distress: The Banking Granular Residual," Journal of Financial Stability, Elsevier, vol. 5(4), pages 353-373, December.
  3. Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
  4. Markwat, Thijs & Kole, Erik & van Dijk, Dick, 2009. "Contagion as a domino effect in global stock markets," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1996-2012, November.
  5. Xavier Gabaix, 2009. "The Granular Origins of Aggregate Fluctuations," NBER Working Papers 15286, National Bureau of Economic Research, Inc.
  6. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
  7. Xavier Gabaix, 2008. "Power Laws in Economics and Finance," NBER Working Papers 14299, National Bureau of Economic Research, Inc.
  8. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
  9. Klingebiel, Daniela & Kroszner, Randall S & Laeven, Luc, 2006. "Banking Crises, Financial Dependence and Growth," CEPR Discussion Papers 5623, C.E.P.R. Discussion Papers.
  10. Alessandra Bonfiglioli & Caterina Mendicino, 2004. "Financial liberalization, bank crises and growth: Assessing the links," Economics Working Papers 946, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
  12. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  13. Julian di Giovanni & Andrei A. Levchenko, 2009. "International Trade and Aggregate Fluctuations in Granular Economies," Working Papers 585, Research Seminar in International Economics, University of Michigan.
  14. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2009. "The systemic importance of financial institutions," BIS Quarterly Review, Bank for International Settlements, September.
  15. Hasman, Augusto & Samartín, Margarita, 2008. "Information acquisition and financial contagion," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2136-2147, October.
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