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Do we face a credit crunch?

  • Gern, Klaus-Jürgen
  • Jannsen, Nils
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    The weakness of credit growth in the United States and Europe has given rise to concerns that the financial crisis has led to a credit crunch which has deepened the recession in the real economy and poses a serious threat to the recovery that seems to have started in the most recent months. In this contribution we find that so far the development of credit aggregates and interest rates for loans does not provide strong evidence for a supply restraint that goes beyond hat could be expected given the deterioration of the quality of borrowers against the background of the exceptionally severe economic downturn. Still, the behaviour of interest rate spreads in the United States does indicate that the effectiveness of monetary policy is reduced for the time being as a result of distress in the financial sector, and we see some risks that inappropriate bank capitalization may restrain credit growth and threaten the current recovery, especially in Germany where core capital is low by international standards. Policy measures to avoid a credit crunch should focus on preventing undercapitalization of banks from becoming a serious limitation to credit growth.

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    Paper provided by Kiel Institute for the World Economy (IfW) in its series Kiel Policy Brief with number 15.

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    Date of creation: 2009
    Date of revision:
    Handle: RePEc:zbw:ifwkpb:15
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    1. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
    2. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 2008. "Facts and myths about the financial crisis of 2008," Working Papers 666, Federal Reserve Bank of Minneapolis.
    3. Silvio Contessi & Johanna Francis, 2009. "U.S. Commercial Bank Lending through 2008:Q4: New Evidence from Gross Credit Flows," Fordham Economics Discussion Paper Series dp2009-04, Fordham University, Department of Economics.
    4. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
    5. repec:rwi:dpaper:0006 is not listed on IDEAS
    6. Ethan Cohen-Cole & Burcu Duygan-Bump & José Fillat & Judit Montoriol-Garriga, 2008. "Looking behind the aggregates: a reply to “Facts and Myths about the Financial Crisis of 2008”," Risk and Policy Analysis Unit Working Paper QAU08-5, Federal Reserve Bank of Boston.
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