The Effect of Banks' Financial Position on Credit Growth: Evidence from OECD Countries

60 Pages Posted: 27 Dec 2016

See all articles by David E Rappoport W

David E Rappoport W

Board of Governors of the Federal Reserve System

Date Written: September, 2016

Abstract

This paper presents empirical evidence on the effect of banks' financial position on credit growth using a sample of 29 OECD countries. The failure of the exogeneity assumption of explanatory variables is addressed using dynamic panel type instruments. The empirical results show that among capital, profits and liquidity at the end of the previous year, capital is the most important predictor of credit growth in the current year. The relationship between capital and credit growth is non-linear. Point estimates from the preferred econometric specification imply that at the sample mean a one standard deviation increase (decrease) in capital is associated with an increase (decrease) of 0.8 (0.3) percentage points in credit growth upon impact and 1.6 (0.6) percentage points in the long-run.

JEL Classification: G21, E44, G28

Suggested Citation

Rappoport Wurgaft, David Elias, The Effect of Banks' Financial Position on Credit Growth: Evidence from OECD Countries (September, 2016). FEDS Working Paper No. 2016-101, Available at SSRN: https://ssrn.com/abstract=2889689 or http://dx.doi.org/10.17016/FEDS.2016.101

David Elias Rappoport Wurgaft (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
54
Abstract Views
355
Rank
676,215
PlumX Metrics