On the Link Between Credit Procyclicality and Bank Competition
CEPII Working Paper No. 2010-25
34 Pages Posted: 5 Feb 2011
Date Written: November 29, 2010
This paper investigates the relationship between bank competition and credit procyclicality for 17 OECD countries on the 1986-2009 period. We account for heterogeneity among countries in terms of bank competition through the use of a hierarchical clustering methodology. We then estimate panel VAR models for the identified sub-groups of economies to investigate whether credit procyclicality is more important when the degree of bank competition is high. Our findings show that while credit significantly responds to shocks to GDP, the degree of bank competition is not essential in assessing the procyclicality of credit for OECD countries.
Keywords: Credit cycle, economic cycle, bank competition, financial stability, panel VAR
JEL Classification: C33, E52, E51, G21
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