On the Link Between Credit Procyclicality and Bank Competition

CEPII Working Paper No. 2010-25

34 Pages Posted: 5 Feb 2011

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Antonia López-Villavicencio

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN)

Valérie Mignon

EconomiX-CNRS, University of Paris Ouest; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: November 29, 2010

Abstract

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

Suggested Citation

Bouvatier, Vincent and López-Villavicencio, Antonia and Mignon, Valérie, On the Link Between Credit Procyclicality and Bank Competition (November 29, 2010). CEPII Working Paper No. 2010-25. Available at SSRN: https://ssrn.com/abstract=1754374 or http://dx.doi.org/10.2139/ssrn.1754374

Vincent Bouvatier (Contact Author)

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Antonia López-Villavicencio

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN) ( email )

UMR7115
Université Paris-Nord
Paris XIII
France

Valérie Mignon

EconomiX-CNRS, University of Paris Ouest ( email )

200 Avenue de la République
Nanterre, Nanterre Cedex 92001
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

113 rue de Grenelle
Paris, F-75007
France

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