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Bank lending in a cointegrated VAR model

  • Filippo Maria Pericoli
  • Roberto Galli
  • Cecilia Frale
  • Stefania Pozzuoli

This paper aims at identifying the link between financial markets and the real sector of the economy. Following the literature on the topic, we select a small set of variables representing the principal financial and real dynamics observed for the Italian economy. As a first result, we find cointegration among the chosen set of variables. Thus we specify and estimate a Vector Error Correction Model which captures both the long-run and the short-term dynamics of the multivariate system. The main innovation of this work lies in investigating the link between lending and growth at a monthly frequency. Moreover, we allow the model to include a structural break due to the latest economic and financial crisis. The model obtained represents an innovative forecasting tool for improving the knowledge, nowcasting and shortterm forecasting of the business cycle by exploiting shocks originating from the lending market that propagate to the real economy.

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Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number 8.

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Length: 26
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:itt:wpaper:wp2013-8
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  1. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
  2. Cecilia Frale & Libero Monteforte, . "FaMIDAS: A Mixed Frequency Factor Model with MIDAS structure," Working Papers 3, Department of the Treasury, Ministry of the Economy and of Finance.
  3. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
  4. Anil K Kashyap & Jeremy C. Stein & David W. Wilcox, 1992. "Monetary Policy and Credit Conditions: Evidence From the Composition of External Finance," NBER Working Papers 4015, National Bureau of Economic Research, Inc.
  5. Saikkonen, Pentti & Lütkepohl, Helmut, 2001. "Testing for the cointegrating rank of a VAR process with structural shifts," SFB 373 Discussion Papers 1998,82, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  6. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
  7. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  8. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  9. Roselyne Joyeux, 2001. "How to Deal with Structural Breaks in Practical Cointegration Analysis," Research Papers 0112, Macquarie University, Department of Economics.
  10. M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar.
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