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on Banking |
| By: | Ivashina, Victoria; Laeven, Luc; Moral-Benito, Enrique |
| Abstract: | Using credit-registry data for Spain and Peru, we document that four main types of commercial credit—asset-based loans, cash-flow loans, trade finance and leasing—are easily identifiable and represent the bulk of corporate credit. We show that credit dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banks’ balance sheets are primarily driven by cash-flow loans, whereas asset-based credit is mostly insensitive to these types of effects. JEL Classification: E5, G21 |
| Keywords: | bank credit, bank lending channel, credit registry, loan types |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202409&r=all |
| By: | Sergey Tsyplakov (University of South Carolina - Darla Moore School of Business); Allen N. Berger (University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Simona Nistor (Babes-Bolyai University - Department of Finance) |
| Abstract: | Bank bailouts are not the "one-shot" events commonly described in the literature. These bailouts are instead dynamic processes in which regulators "catch" financially distressed banks; "restrict" their activities over time; and "release" the banks from restrictions at sufficiently healthy capital ratios. The "catch-restrict-release" approach is a global phenomenon, which we document using hand-collected data on capital injection and debt guarantee bailouts in the European Union (EU) over 2008-2014. We present a dynamic theoretical model of socially-optimizing regulators engaging in "catch-restrict-release" capital injection and debt guarantee bailouts, and empirically test model predictions. Observed EU bailouts are qualitatively consistent with optimizing behavior. |
| Keywords: | bailout, debt guarantees, capital injections, bailout restrictions, regulatory restriction phase, restriction duration |
| JEL: | G21 G28 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2045&r=all |
| By: | Jason Allen; Shaoteng Li |
| Abstract: | This paper develops a framework for investigating dynamic competition in markets where price is negotiated between an individual customer and multiple firms repeatedly. Using contract-level data for the Canadian mortgage market, we provide evidence of an “invest-then-harvest” pricing pattern: lenders offer relatively low interest rates to attract new borrowers and poach rivals' existing customers, and then at renewal charge interest rates which can be higher than what may be available through other lenders in the marketplace. We build a dynamic model of price negotiation with search and switching frictions to capture key market features. We estimate the model and use it to investigate (i) the effects of dynamic competition on borrowers' and banks' payoffs, (ii) the implications of dynamic versus static settings for merger-studies, and (iii) the impacts from recent Canadian macroprudential policies. |
| Keywords: | Financial institutions; Financial services; Market structure and pricing |
| JEL: | L2 D4 G21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-22&r=all |
| By: | Beck, Thorsten; Radev, Deyan; Schnabel, Isabel |
| Abstract: | We assess the ability of bank resolution frameworks to deal with systemic banking fragility. Using a novel and detailed database on bank resolution regimes in 22 member countries of the Financial Stability Board, we show that systemic risk, as measured by â?³CoVaR, increases more for banks in countries with more comprehensive bank resolution frameworks after negative system-wide shocks, such as Lehman Brothers' default, while it decreases more after positive system-wide shocks, such as Mario Draghi's "whatever it takes'' speech. These results suggest that more comprehensive bank resolution may exacerbate the effect of system-wide shocks and should not be solely relied on in cases of systemic distress. |
| Keywords: | bail-in; Bank resolution regimes; systemic risk |
| JEL: | G01 G21 G28 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14724&r=all |
| By: | Daron Acemoglu; Asuman Ozdaglar; James Siderius; Alireza Tahbaz-Salehi |
| Abstract: | This paper develops a network model of interbank lending, in which banks decide to extend credit to their potential borrowers. Borrowers are subject to shocks that may force them to default on their loans. In contrast to much of the previous literature on financial networks, we focus on how anticipation of future defaults may result in ex ante “credit freezes,” whereby banks refuse to extend credit to one another. We first characterize the terms of the interbank contracts and the patterns of interbank lending that emerge in equilibrium. We then study how shifts in the distribution of shocks can result in complex credit freezes that travel throughout the network. We use this framework to analyze the effects of various policy interventions on systemic credit freezes. |
| JEL: | D85 G01 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27149&r=all |
| By: | Jose-Maria Serena; Serafeim Tsoukas |
| Abstract: | Using a cross-country sample of bank-dependent public firms, we study the international spillovers of a change in banking regulation on corporate borrowing. For identification we examine how US firms’ liabilities vis-`a-vis banks, nonbank lenders, and bond markets evolve after an increase in capital requirements implemented by the European Banking Authority (EBA) in 2011. We find that US firms experience a reduction in credit lines but not in term loans from EU banks. In addition, US firms are able to compensate for reductions in credit lines from EU banks by securing liquidity facilities from US nonbank financial institutions without increasing borrowing from US corporate bond markets. These results suggest that diversified domestic loan markets, in which banks and nonbank financial institutions lend to corporations, can help overcome cuts in cross-border bank funding. |
| Keywords: | Credit lines; term loans; bank capital requirements; firm-level data; non-bank financial intermediaries |
| JEL: | G21 G32 F32 F34 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_13&r=all |
| By: | Mattia Girotti; Guillaume Horny |
| Abstract: | We study how bank equity values affect loan supply. We exploit granular balance sheet information on euro area banks matched with financial market data. We address endogeneity concerns by instrumenting bank stock prices with a shifter derived from each bank stock price's sensitivity to non-financial corporations' equity values. Our results indicate that, other things equal, rises in bank stock prices cause increases in corporate and household lending, and in bank capitalization. We interpret these results as due to bank managers reading the rises in their bank's stock price as reductions in their bank's cost of equity. |
| Keywords: | Banks, Stock Prices, Loan Supply, Equity Funding. |
| JEL: | G21 G31 G32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:767&r=all |
| By: | Lang, Jan Hannes; Forletta, Marco |
| Abstract: | This paper studies the impact of cyclical systemic risk on future bank profitability for a large representative panel of EU banks between 2005 and 2017. Using linear local projections we show that high current levels of cyclical systemic risk predict large drops in the average bank-level return on assets (ROA) with a lead time of 3-5 years. Based on quantile local projections we further show that the negative impact of cyclical systemic risk on the left tail of the future bank-level ROA distribution is an order of magnitude larger than on the median. Given the tight link between negative profits and reductions in bank capital, our method can be used to quantify the level of “Bank capital-at-risk” for a given banking system, akin to the concept of “Growth-at-risk”. We illustrate how the method can inform the calibration of countercyclical macroprudential policy instruments. JEL Classification: G01, G17, C22, C54, G21 |
| Keywords: | bank profitability, Growth-at-risk, local projections, quantile regressions, systemic risk |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202405&r=all |
| By: | Olivier Bruno (Université Côte d'Azur; GREDEG CNRS; Skema Business School); Melchisedek Joslem Ngambou Djatche (Université Côte d'Azur; GREDEG CNRS) |
| Abstract: | This paper models monetary policy's transmission to bank risk in presence of a capital requirement ratio. We show that the impact of a change in monetary policy rate on bank's risk level is not independent from the strength of the capital requirement ratio. A monetary easing, as well as a monetary contraction, may lead bank to take more risk according to some effecs related to the risk sensitivity of its intermediation margin and risk sensitivity of the prudential tool. We show that the combination of monetary policy with prudential policy has different outcomes in terms of financial stability and expected cost of bank failure. |
| Keywords: | Monetary policy, prudential policy, financial stability, bank's risktaking, partial equilibrium model |
| JEL: | E43 E52 E61 G01 G21 G28 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-24&r=all |
| By: | Bonfim, Diana; Cerqueiro, Geraldo; Degryse, Hans; Ongena, Steven |
| Abstract: | In spite of growing regulatory pressure in most developed economies, "zombie lending" remains a widespread practice by banks. In this paper we exploit a series of large-scale on-site inspections made on the credit portfolios of several Portuguese banks to investigate how these inspections affect banks' future lending decisions. We find that an inspected bank becomes 20% less likely to refinance zombie firms, immediately spurring their default. However, banks change their lending decisions only in the inspected sectors. Overall, banks seemingly reduce zombie lending because the incentives to hold these loans disappear once they are forced to recognize losses. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14754&r=all |
| By: | James Conklin; W. Scott Frame; Kristopher S. Gerardi; Haoyang Liu |
| Abstract: | An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–2006 U.S. house price boom. By contrast, this paper documents a robust, negative correlation between the growth in the share of purchase mortgages to subprime borrowers and house price appreciation at the county-level during this time. Using two different instrumental variables approaches, we also establish causal evidence that house price appreciation lowered the share of purchase loans to subprime borrowers. Further analysis using micro-level credit bureau data shows that higher house price appreciation lowered the transition rate into first-time homeownership for subprime individuals. Finally, the paper documents that subprime borrowers did not play a significant role in the increased speculative activity and underwriting fraud that the literature has linked directly to the housing boom. Taken together, these results are more consistent with subprime borrowers being priced out of housing boom markets rather than inflating prices in those markets. |
| Keywords: | mortgages; subprime; house prices; credit scores; housing boom |
| JEL: | D14 D18 D53 G21 G38 |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:88039&r=all |
| By: | Nicola Branzoli; Fulvia Fringuellotti |
| Abstract: | Monitoring is one of the main activities explaining the existence of banks, yet empirical evidence about its effect on loan outcomes is scant. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring based on banks’ requests for information on their existing borrowers and we investigate the effect of bank monitoring on loan repayment. We perform a causal analysis exploiting changes in the regional corporate tax rate as a source of exogenous variation in bank monitoring. Our identification strategy is supported by a theoretical model predicting that a decrease in the tax rate improves bank incentives to monitor borrowers by increasing returns from lending. We find that bank monitoring reduces the probability of a delinquency in a substantial way and that the effect is stronger for the types of loans that benefit most from bank oversight, such as term loans. |
| Keywords: | bank monitoring; nonperforming loan; tax policy |
| JEL: | G21 G32 H25 H32 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:87985&r=all |
| By: | Riccardo Doyle |
| Abstract: | Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify whether interbank contagion offers any predictive explanatory power on default events. We predict defaults of U.S. domiciled commercial banks in the first quarter of 2010 using data from the preceding four quarters. A number of established predictors (such as Tier 1 Capital Ratio and Return on Equity) are included alongside contagion to gauge if the latter adds significance. Based on this methodology, we conclude that interbank contagion is extremely explanatory in default prediction, often outperforming more established metrics, in both regression and neural network models. These findings have sizeable implications for the future use of interbank contagion as a variable of interest for stress testing, bank issued bond valuation and wider bank default prediction. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.12619&r=all |
| By: | Braggion, Fabio; Manconi, Alberto; Pavanini, Nicola; Zhu, Haikun |
| Abstract: | We study the welfare effects of the transition of online debt crowdfunding from the older "peer-to-peer" model to the "marketplace" model, where the crowdfunding platform sells diversified loan portfolios to investor. We develop an equilibrium model of debt crowdfunding capturing platform design (peer-to-peer or marketplace) and lender preferences over loan and portfolio product characteristics, and we estimate it on a novel database on credit at a large online platform based in China. Moving from the peer-to-peer to the marketplace model raises lender surplus, platform profits, and credit provision. At the same time, reducing lender exposure to liquidity risk can be beneficial. A counterfactual scenario where the platform resembles a bank by bearing liquidity risk has similar welfare properties as the marketplace model when liquidity is high, but results in larger lender surplus and credit provision, and only moderately lower platform profits, when liquidity is low. |
| Keywords: | Chinese financial system; Marketplace credit; structural estimation |
| JEL: | D14 D61 G21 L21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14740&r=all |
| By: | Marwan Izzeldin; Emmanuel Mamatzakis; Anthony Murphy; Mike G. Tsionas |
| Abstract: | Using Bayesian Monte Carlo methods, we augment a stochastic distance function measure of bank efficiency and productivity growth with indicators of capitalization, return and risk. Our novel Multiple Indicator-Multiple Cause (MIMIC) style model generates more precise estimates of policy relevant parameters such as returns to scale, technical inefficiency and productivity growth. We find considerable variation in the performance of EU-15 banks over the period 2008 to 2015. For the vast majority of banks, productivity growth – the sum of efficiency and technical changes – is negative, implying that the industry would benefit from innovation. We show that greater technical efficiency is associated with higher profitability, higher capital, a lower probability of default and lower return volatility. |
| Keywords: | Multiple Indicators-Multiple Causes (MIMIC); technical efficiency; productivity growth; EU banks |
| JEL: | C11 C51 D24 G21 |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:88038&r=all |
| By: | Kristian S. Blickle; Quirin Fleckenstein; Sebastian Hillenbrand; Anthony Saunders |
| Abstract: | We make use of Shared National Credit Program (SNC) data to examine syndicated loans in which the lead arranger retains no stake. We find that the lead arranger sells its entire loan share for 27 percent of term loans and 48 percent of Term B loans, typically shortly after syndication. In contrast to existing asymmetric information theories on the role of the lead share, we find that loans that are sold are less likely to become non-performing in the future. This result is robust to several different measures of loan performance and is reflected in subsequent secondary market prices. We explore syndicated loan underwriting risk as an alternative theory that may help explain this result. |
| Keywords: | syndicated lending; loan sales; lead arranger |
| JEL: | G21 G24 G30 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:87916&r=all |
| By: | Athanasios Kolliopoulos |
| Abstract: | This article explores the determinants of the three bank bailouts in Greece during the recent financial crisis. Building on literature from comparative studies applying the ÒVarieties of Financial CapitalismÓ framework, the paper analyzes the factors contributing to bank rescue package design. Although this analysis verifies the institutionalist hypotheses in the case of the two fist recapitalizations, the article attempts to explain the significant changes in the domestic banking system and the transfer of control of systemic banks to foreign hands, which were caused after the third recapitalization in 2015. Interpreting such an exceptional case, we focus on the ECBÕs lender of last resort tools as a catalyst for bank restructuring. |
| Keywords: | Greek banks, ÒdehellenizationÓ, Varieties of Capitalism, bailout, Emergency Liquidity Assistance |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:148&r=all |
| By: | David Andolfatto; Ed Nosal |
| Abstract: | Short-term debt is commonly used to fund illiquid assets. A conventional view asserts that such arrangements are run-prone in part because redemptions must be processed on a first-come, first-served basis. This sequential service protocol, however, appears absent in the wholesale banking sector---and yet, shadow banks appear vulnerable to runs. We explain how banking arrangements that fund fixed-cost operations using short-term debt can be run-prone even in the absence of sequential service. Interventions designed to eliminate run risk may or may not improve depositor welfare. We describe how optimal policies vary under different conditions and compare these to recent policy interventions by the Security and Exchange Commission and the Federal Reserve. We conclude that the conventional view concerning the societal benefits of liquidity transformation and its recommendations for prudential policy extend far beyond their application to depository institutions. |
| Keywords: | Sequential service; fixed costs; bank runs; deposit insurance |
| JEL: | G01 G21 G28 |
| Date: | 2020–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88125&r=all |
| By: | Baumöhl, Eduard; Bouri, Elie; Hoang, Thi-Hong-Van; Shahzad, Syed Jawad Hussain; Výrost,Tomáš |
| Abstract: | Over the last few decades, large banks worldwide have become more interconnected, and as a result, the failure of one can trigger the failure of many. In finance, this phenomenon is often known as financial contagion, which can occur as a domino effect. In this paper, we show an unprecedented increase in bank interconnectedness during the outburst of the COVID-19 pandemic. We measure how extreme negative stock market returns for one bank spill over to all other banks within the network, and on this basis, we propose a new measure of systemic risk among banks. Our results indicate that the systemic risk and the density of the spillover network have never been as high as they have been during the pandemic, not even during the 2008 global financial crisis. Policy makers and regulatory authorities should be particularly cautious regarding this interconnected financial environment, as second waves of the pandemic could pose a significant danger to the worldwide economy, and the “it’s-just-a-flu” narrative will no longer be an option. |
| Keywords: | systemic risk,banks,COVID-19,pandemic,cross-quantilogram,financial networks,interconnectedness |
| JEL: | G01 G15 G21 G28 C21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:218944&r=all |
| By: | Kevin Foster; Claire Greene; Joanna Stavins |
| Abstract: | In 2018, U.S. consumers made 72 payments per month on average, not a significant change from 2017. As in 2017, the most frequently used payment instruments were debit cards (34 percent of all transactions), cash (24 percent), and credit cards (23 percent). Over the 11 years of the survey, debit, cash, and credit have consistently been the most popular ways to pay. For the first time in 2018, debit cards replaced cash as the payment instrument used most frequently for in-person purchases. Some key findings about medium-term trends from 2015 to 2018 include the following: • The share of consumers adopting mobile apps or mobile online accounts (such as Android Pay, Apple Pay, Samsung Pay) increased from 40 percent to 60 percent. • The share making a mobile payment at least once in the previous 12 months increased from one-fourth to one-third of consumers. • There was a statistically significant increase in the use of mobile banking, from 45 percent of consumers to 56 percent. • The share of credit card adopters who carried an unpaid balance steadily declined to 44 percent in 2018. Notable findings within the last year include the following: • While the number of online purchases per month increased slightly, from 5.6 per consumer in 2017 to 5.9 in 2018, the change was not statistically significant. • There was a statistically significant decline in the use of cash, from 19 payments per month to 17. • The use of paper checks continued to decline, from 6 percent of payments per month to 5 percent. • The share of consumers using bank account number payment (BANP) at least once in a month increased from 59 percent to 66 percent. Interactive charts, showing payment use by transaction type, income, and age, are posted on the Atlanta Fed website. |
| Keywords: | unbanked; credit cards; checks; cash; prepaid cards; checking accounts; payment preferences; debit cards; Survey of Consumer Payment Choice; electronic payments |
| JEL: | D14 E42 D12 |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedadr:87820&r=all |
| By: | Luisa Roa; Alejandro Correa-Bahnsen; Gabriel Suarez; Fernando Cort\'es-Tejada; Mar\'ia A. Luque; Cristi\'an Bravo |
| Abstract: | In this paper we present the impact of alternative data that originates from an app-based marketplace, in contrast to traditional bureau data, upon credit scoring models. These alternative data sources have shown themselves to be immensely powerful in predicting borrower behavior in segments traditionally underserved by banks and financial institutions. Our results, validated across two countries, show that these new sources of data are particularly useful for predicting financial behavior in low-wealth and young individuals, who are also the most likely to engage with alternative lenders. Furthermore, using the TreeSHAP method for Stochastic Gradient Boosting interpretation, our results also revealed interesting non-linear trends in the variables originating from the app, which would not normally be available to traditional banks. Our results represent an opportunity for technology companies to disrupt traditional banking by correctly identifying alternative data sources and handling this new information properly. At the same time alternative data must be carefully validated to overcome regulatory hurdles across diverse jurisdictions. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.14658&r=all |
| By: | Toni Ahnert; Caio Machado; Ana Elisa Pereira |
| Abstract: | Government interventions such as bailouts are often implemented in times of high uncertainty. Policymakers may therefore rely on information from financial markets to guide their decisions. We propose a model in which a policymaker learns from market activity and where market participants have high stakes in the intervention. We study how the strategic behavior of informed traders affects market informativeness, the probability and efficiency of bailouts, and stock prices. We apply the model to study the liquidity support of distressed banks and derive implications for market informativeness and policy design. Commitment to a minimum liquidity support can increase market informativeness and welfare. |
| Keywords: | Financial institutions, Financial markets, Financial system regulation and policies, Lender of last resort |
| JEL: | D83 G18 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-23&r=all |
| By: | Zachary Feinstein; T. R. Hurd |
| Abstract: | This paper investigates whether a financial system can be made more stable if financial institutions share risk by exchanging contingent convertible (CoCo) debt obligations. The question is framed in a financial network model of debt and equity interlinkages with the addition of a variant of the CoCo that converts continuously when a bank's equity-debt ratio drops to a trigger level. The main theoretical result is a complete characterization of the clearing problem for the interbank debt and equity at the maturity of the obligations. We then consider a simple setting in which introducing contingent convertible bonds improves financial stability, as well as specific networks for which contingent convertible bonds do not provide uniformly improved system performance. To return to the main question, we examine the EU financial network at the time of the 2011 EBA stress test to do comparative statics to study the implications of CoCo debt on financial stability. It is found that by replacing all unsecured interbank debt by standardized CoCo interbank debt securities, systemic risk in the EU will decrease and bank shareholder value will increase. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.01037&r=all |
| By: | Ambrocio, Gene; Hasan, Iftekhar; Jokivuolle, Esa; Ristolainen, Kim |
| Abstract: | We survey 149 leading academic researchers on bank capital regulation. The median (average) respondent prefers a 10% (15%) minimum non-risk-weighted equity-to-assets ratio, which is considerably higher than the current requirement. North Americans prefer a significantly higher equity-to-assets ratio than Europeans. We find substantial support for the new forms of regulation introduced in Basel III, such as liquidity requirements. Views are most dispersed regarding the use of hybrid assets and bail-inable debt in capital regulation. 70% of experts would support an additional market-based capital requirement. When investigating factors driving capital requirement preferences, we find that the typical expert believes a five percentage points increase in capital requirements would “probably decrease” both the likelihood and social cost of a crisis with “minimal to no change” to loan volumes and economic activity. The best predictor of capital requirement preference is how strongly an expert believes that higher capital requirements would increase the cost of bank lending. |
| JEL: | G01 G28 |
| Date: | 2020–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_010&r=all |
| By: | Cyril Couaillier; Valerio Scalone |
| Abstract: | In this paper we study how households’ financial vulnerability affects the propagation of housing and credit shocks. First, we estimate a non-linear model generating impulse responses that depend on the evolution of households' Debt to Service Ratio, i.e. the fraction of income that households use to pay back their debt. Second, we use sign restrictions to jointly identify a wide set of financial and economic shocks. We find that financial vulnerability: i) amplifies the response of the economy to housing shock, ii) makes the response to expansionary credit shocks less persistent and even negative after the first year since the arrival of the shock. Finally, overall recessionary shocks have larger effects with respect to expansionary ones of the same size. |
| Keywords: | Financial Vulnerability, Macroprudential Policy, non-linear Models, Housing, Credit. |
| JEL: | C32 E51 G01 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:763&r=all |