Economic Activity and Credit Market Linkages: New Evidence from Italy

35 Pages Posted: 5 Oct 2017

See all articles by Vincenzo Chiorazzo

Vincenzo Chiorazzo

Italian Banking Association

Vincenzo D'Apice

Center for Relationship Banking and Economics

Pierluigi Morelli

Italian Banking Association

Giovanni Walter Puopolo

University of Naples Federico II - Department of Economic and Statistical Sciences

Date Written: November 2017

Abstract

We investigate the interactions between the real economy and credit markets in Italy, focusing in particular on how the business cycle influences the risks of the banks’ loan portfolio (i.e. the real effect), and in turn how the credit market affects the real economy (i.e. the credit supply effect). We find evidence of both effects, with the former conveyed primarily by the creditworthiness of large firms. Moreover, we disentangle credit supply shocks due to factors inside the banking sector (the bank lending channel) from those outside the banking sector (the borrower's balance‐sheet channel), and find that both channels have a negative and significant effect on gdp growth.

Suggested Citation

Chiorazzo, Vincenzo and D'Apice, Vincenzo and Morelli, Pierluigi and Puopolo, Giovanni Walter, Economic Activity and Credit Market Linkages: New Evidence from Italy (November 2017). Economic Notes, Vol. 46, Issue 3, pp. 491-526, 2017. Available at SSRN: https://ssrn.com/abstract=3048063 or http://dx.doi.org/10.1111/ecno.12086

Vincenzo Chiorazzo (Contact Author)

Italian Banking Association ( email )

Rome, 00186
Italy

Vincenzo D'Apice

Center for Relationship Banking and Economics ( email )

Pierluigi Morelli

Italian Banking Association ( email )

Rome, 00186
Italy

Giovanni Walter Puopolo

University of Naples Federico II - Department of Economic and Statistical Sciences ( email )

Via Cintia 26
Napoli
Italy

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