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

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

58 Pages Posted: 12 Jan 2021 Last revised: 26 Apr 2022

See all articles by Hamza Bennani

Hamza Bennani

Nantes University

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: April 26, 2022

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 a widening of the credit spread and a tightening of credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are 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; the prevalence of the crisis state is more pronounced in times of adverse credit conditions. Together with a stronger 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 (April 26, 2022). 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

Nantes University ( email )

Avenue de la censive du Tertre
Bâtiment Erdre
Nantes, Nantes 44300
France

Jan Pablo Burgard

University of Trier - Faculty of Economics ( email )

Germany

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universit├Ątsring 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
23
Abstract Views
236
PlumX Metrics