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

36 Pages Posted: 8 Dec 2020

See all articles by Hamza Bennani

Hamza Bennani

CEROS, Paris Nanterre University

Matthias Neuenkirch

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

Date Written: 2020

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 less important in explaining growth fluctuations. Credit standards and the credit spread 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.

JEL Classification: E440, E520, E580, G210

Suggested Citation

Bennani, Hamza and Neuenkirch, Matthias, The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model (2020). CESifo Working Paper No. 8740, Available at SSRN: https://ssrn.com/abstract=3744603 or http://dx.doi.org/10.2139/ssrn.3744603

Hamza Bennani

CEROS, Paris Nanterre University ( email )

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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