From Subprime Loans to Subprime Growth? Evidence for the Euro Area

Author/Editor:

Martin Cihak ; Petya Koeva Brooks

Publication Date:

March 1, 2009

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a cutback in bank loan supply has a negative impact on economic activity; (iii) a positive shock to the corporate bond spread lowers industrial output; and (iv) risk indicators for the banking, corporate, and public sectors show an improvement beginning in 2002–03, followed by a major deterioration since 2007. These estimates imply that the currently estimated bank losses would subtract some 2 percentage points from the euro area output (but with considerable uncertainty around the estimates).

Series:

Working Paper No. 2009/069

Subject:

Bank credit Banking Corporate bonds Credit Demand for money Financial institutions Loans Money

English

Publication Date:

March 1, 2009

ISBN/ISSN:

9781451872163/1018-5941

Stock No:

WPIEA2009069

Pages:

35

Please address any questions about this title to publications@imf.org