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Output and inflation responses to credit shocks: are there threshold effects in the euro area?

  • Calza, Alessandro
  • Sousa, João

This paper investigates whether output and inflation respond asymmetrically to credit shocks in the euro area. The methodology, based on a non-linear VAR system, follows work by Balke (2000) for the US. The results reveal evidence of threshold effects related to credit conditions in the economy. Consistent with this finding, the impulse responses show some signs of asymmetric responses over the lending cycle. JEL Classification: E51, C15, C32

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Paper provided by European Central Bank in its series Working Paper Series with number 0481.

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Date of creation: Apr 2005
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Handle: RePEc:ecb:ecbwps:20050481
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  1. Nathan S. Balke, 2000. "Credit and Economic Activity: Credit Regimes and Nonlinear Propagation of Shocks," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 344-349, May.
  2. Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S," NBER Working Papers 9985, National Bureau of Economic Research, Inc.
  3. Blinder, Alan S, 1987. "Credit Rationing and Effective Supply Failures," Economic Journal, Royal Economic Society, vol. 97(386), pages 327-52, June.
  4. Chatelain, J-B. & Generale, A. & Hernando, I. & Von Kalckreuth, U. & Vermeulen, P., 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," Working papers 97, Banque de France.
  5. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June.
  6. Chatelain, Jean-Bernard & Generale, Andrea & Hernando, Ignacio & Von Kalckreuth, Ulf & Vermeulen, Philip, 2001. "Firm investment and monetary transmission in the euro area," Working Paper Series 0112, European Central Bank.
  7. Ehrmann , Michael & Ellison, Martin & Valla, Natacha, 2001. "Regime-dependent impulse response functions in a Markov-switching vector autoregression model," Research Discussion Papers 11/2001, Bank of Finland.
  8. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
  9. Calza, Alessandro & Manrique, Marta & Sousa, João, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 0202, European Central Bank.
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