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

37 Pages Posted: 6 Apr 2009

See all articles by Martin Čihák

Martin Čihák

International Monetary Fund (IMF)

Petya Koeva Brooks

International Monetary Fund (IMF) - Research Department

Date Written: March 2009

Abstract

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).

Keywords: Credit risk, Euro Area, Financial sector, Real sector, Banking, Demand for money, Interest rates, Financial risk, Economic models

Suggested Citation

Cihak, Martin and Koeva, Petya, From Subprime Loans to Subprime Growth? Evidence for the Euro Area (March 2009). IMF Working Papers, Vol. , pp. 1-35, 2009. Available at SSRN: https://ssrn.com/abstract=1372945

Martin Cihak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Petya Koeva

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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