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Bank loan supply shocks and alternative financing of non-financial corporations in the euro area

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  • Mandler, Martin
  • Scharnagl, Michael

Abstract

We analyse the macroeconomic effects of exogenous contractions in bank lending to non-financial corporations in the Euro Area, Germany, France, Italy and Spain using a Bayesian vector autoregressive model with endogenous hyperparameter selection and identification via sign restrictions. We focus on the behaviour of firms' external financing sources alternative to bank loans, such as financing via equity, debt securities, trade credit and lending from non-banks. We investigate whether these alternative financing sources are complements to or substitutes for bank lending using the joint posterior distribution of their impulse responses with that of bank loans. For the Euro Area our results show equity, debt securities and non-bank loans to be substitutes for bank loans with negative responses to a positive loan supply shock while trade credit is a complement and responds positively. We show that the substitution relationship with respect to bank loans is more clearly visible in the joint distribution of the financing sources reactions than when focusing only on the marginal impulse responses. Quantitatively, the developments in bank loans and trade credit dominate the response of the overall sum of the external financing. This result also holds in most cases at the country level. However, whether and which of the alternative financing sources are substitutes for or complements to bank loans differs across countries.

Suggested Citation

  • Mandler, Martin & Scharnagl, Michael, 2019. "Bank loan supply shocks and alternative financing of non-financial corporations in the euro area," Discussion Papers 23/2019, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:232019
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    Cited by:

    1. Meinen, Philipp & Roehe, Oke, 2018. "To sign or not to sign? On the response of prices to financial and uncertainty shocks," Economics Letters, Elsevier, vol. 171(C), pages 189-192.
    2. Martin Mandler & Michael Scharnagl, 2020. "Bank loan supply shocks and alternative financing of non‐financial corporations in the euro area," Manchester School, University of Manchester, vol. 88(S1), pages 126-150, September.
    3. Mandler, Martin & Scharnagl, Michael, 2020. "Estimating the effects of the Eurosystem's asset purchase programme at the country level," Discussion Papers 29/2020, Deutsche Bundesbank.
    4. Oliver Hülsewig & Johann Scharler, 2020. "The Euro Area Periphery Sovereigns' Fiscal Positions and Unconventional Monetary Policy," CESifo Working Paper Series 8041, CESifo.

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    More about this item

    Keywords

    loan supply; external financing; Euro Area; Bayesian VAR; sign restrictions; joint posterior distribution;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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