## Figure 2.3.1. The Riskiness of Credit Allocation and Financial Conditions

## Source details

**Canonical URL:** [Figure 2.3.1. The Riskiness of Credit Allocation and Financial Conditions](https://www.imf.org/-/media/files/publications/gfsr/2018/april/chapter-2/pdf/boxfigure2-3-1.pdf)

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### Methodology
- Responses estimated using a panel vector autoregression (VAR) of: the financial conditions index (FCI), GDP growth, credit growth, and the leverage-based measure of riskiness of credit allocation.
- Data frequency and coverage: yearly data (1991–2016) for 41 countries.
- VAR specification: includes country fixed effects and one lag.
- Identification: figure shows responses of a given variable to an orthogonal shock to another variable.
- Units and interpretation:
  - Responses of the FCI (panel 3) and the riskiness of credit allocation (panels 1 and 4) are in standard deviations.
  - Responses of credit growth (panel 2) are in percent of GDP.
  - A rise in the FCI means a loosening of financial conditions.
  - The x-axis in all panels is years after the shock.
  - Dark-green lines are the average response; light-green lines are confidence bands at the 90 percent level.

### Panels and Key Responses
- Panel 1 — Response of Riskiness to Credit Growth Shock
  - Shows the path of the leverage-based measure of riskiness of credit allocation (in standard deviations) following an orthogonal shock to credit growth.
  - X-axis: years after the shock (0 through 10).
  - Visual scale markers appearing in the figure include: –0.05, 0.20, 0.00, 0.05, 0.10, 0.15.

- Panel 2 — Response of Credit Growth to Riskiness Shock
  - Shows credit growth response (in percent of GDP) to an orthogonal shock to the riskiness of credit allocation.
  - X-axis: years after the shock (0 through 10).
  - Visual scale markers appearing in the figure include: –0.6, 1.4, –0.4, –0.2, 0.0, 0.2, 0.4, 0.6, 0.8, 1.0, 1.2.

- Panel 3 — Response of FCI to Riskiness Shock
  - Shows the financial conditions index response (in standard deviations) to an orthogonal shock to the riskiness of credit allocation.
  - X-axis: years after the shock (0 through 10).
  - Visual scale markers appearing in the figure include: –0.35, 0.05, –0.30, –0.25, –0.20, –0.15, –0.10, –0.05, 0.00, –0.05, 0.35.

- Panel 4 — Response of Riskiness to FCI Shock
  - Shows the leverage-based measure of riskiness of credit allocation (in standard deviations) following an orthogonal shock to the FCI.
  - X-axis: years after the shock (0 through 10).
  - Visual scale markers appearing in the figure include: 0.00, 0.05, 0.10, 0.15, 0.20, 0.25, 0.30.

### Statistical Presentation Notes
- Confidence bands are at the 90 percent level around the average response.
- The figure presents impulse-response dynamics up to 10 years after shocks.
- All variables and units are preserved as reported: standard deviations for FCI and riskiness measures; percent of GDP for credit growth.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/april/chapter-2/pdf/boxfigure2-3-1.pdf_