The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model

University of Trier Research Papers in Economics No. 11/20

48 Pages Posted: 12 Jan 2021 Last revised: 23 Jul 2021

See all articles by Hamza Bennani

Hamza Bennani

Université Paris Ouest - Nanterre, La Défense - EconomiX

Jan Pablo Burgard

University of Trier - Faculty of Economics

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 22, 2021

Abstract

We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1-2019Q4 with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states over time. We show that shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are slightly less important in explaining growth fluctuations. The credit spread and - to some extent - credit standards are also the key determinants of the underlying state of the economy in the logit submodel. Together with a more pronounced transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit conditions is also reflected in the labor market.

Keywords: Credit growth, credit spread, credit standards, euro area, financial accelerator, mixture VAR, monetary policy transmission

JEL Classification: E44, E52, E58, G21

Suggested Citation

Bennani, Hamza and Burgard, Jan Pablo and Neuenkirch, Matthias, The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (July 22, 2021). University of Trier Research Papers in Economics No. 11/20, Available at SSRN: https://ssrn.com/abstract=3738667 or http://dx.doi.org/10.2139/ssrn.3738667

Hamza Bennani

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Jan Pablo Burgard

University of Trier - Faculty of Economics ( email )

Germany

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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