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

March 1, 2009

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Format: Chicago

Martin Cihak, and Petya Koeva Brooks. From Subprime Loans to Subprime Growth? Evidence for the Euro Area, (USA: International Monetary Fund, 2009) accessed December 3, 2024

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).

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

Keywords: Bank, Bank credit, Bank loan supply, Contingent claims approach, Corporate bonds, Credit, Demand and supply, Demand for money, Demand shock, Euro, Euro area, Europe, Financial sector, Financing condition, Global, Lending, Lending standard, Linkages, Loans, Money demand demand shock, Real sector, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/069
Stock No:

WPIEA2009069
ISBN:

9781451872163
ISSN:

1018-5941

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