How important can bank lending shocks be for economic fluctuations? |
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| Institution: | 1. Handelshø yskolen BI, 0442 Oslo, Norway;2. Real Colegio Complutense (RCC) at the Harvard University, 26 Trowbridge Street, Cambridge, 02138 MA, USA;3. Finans Norge, Postboks 2473 Solli, 0202 Oslo, Norway;1. Management School, University of Liverpool, UK;2. Manchester Business School, University of Manchester, UK;1. Department of Accounting Information, National Taichung University of Science and Technology, 129 Sanmin Rd., Sec 3, Taichung 40401, Taiwan;2. Department of International Business Studies, National Chi-Nan University, Nantou, Taiwan;3. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan |
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| Abstract: | We analyze the quantitative importance of bank lending shocks on real activity fluctuations in Norway and the UK, using structural VARs estimated on quarterly data from 1988 to 2010. We find that an adverse bank lending shock causes output to contract, and that such shocks can account for a substantial share of output volatility. This suggests that financial intermediation is an important source of shocks. The empirical analysis comprises the Norwegian banking crisis (1988–1992) and the recent period of banking failures in the UK. However, the results are also non-trivial when omitting periods of systemic banking distress from the sample. |
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| Keywords: | Identification VAR Bank lending Monetary policy |
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