The role of global financial conditions for credit supply in EMU periphery countries

The article analyses the role of global financial conditions for credit supply and growth performance in individual member states of the European Monetary Union (EMU). In line with the risk-taking channel of monetary policy, we find that in the short run, the Fed and European Central Bank (ECB) interest rate policy compensate for changes in global risk assessment thereby supporting net private credit flows to the European periphery. However, in later periods, a worsened risk sentiment weighs on credit flows to these countries. In contrast, EMU core countries are generally less affected by global financial shocks. This asymmetric influence of global conditions on EMU member states are smoothed by the uniform access of commercial banks to the Eurosystem’s open market operations in conjunction with the redistribution of liquidity via the TARGET mechanism.