Modelling Loans to Non-Financial Corporations in the Euro Area
48 Pages Posted: 30 Mar 2012
Date Written: February 23, 2012
We model the determinants of loans to non-financial corporations in the euro area. Using the Johansen (1992) methodology, we identify three cointegrating relationships. These relationships are interpreted as the long-run loan demand, investment and loan supply equations. The short-run dynamics of loan demand for the euro area are subsequently modelled using a Vector Error Correction Model (VECM). We perform a number of specification tests, which suggest that developments in loans to non-financial corporations in the euro area can be reasonably explained by the model. We then use the estimated model to analyse the impact of permanent and temporary shocks to the policy rate on bank lending to non-financial corporations.
Keywords: loans to non-financial corporations, credit
JEL Classification: C32, C51
Suggested Citation: Suggested Citation