How Do Credit Supply Conditions Transmit Across the Globe?

68 Pages Posted: 1 Jun 2022 Last revised: 6 Feb 2023

See all articles by Helmut Herwartz

Helmut Herwartz

University of Goettingen (Göttingen)

Christian Ochsner

German Council of Economic Experts

Hannes Rohloff

University of Goettingen (Göttingen)

Date Written: February 5, 2023

Abstract

Pointing to the prominent role of global shocks in determining financial outcomes, global credit aggregates and indicators of country-specific credit market stress co-move to a significant extent. In this work, we examine the transmission of global credit supply shocks associated with governments, businesses and households to the country level. In a data-rich environment, we show that a substantial amount of variation in credit aggregates and interest rates is explained by common global credit supply components. In addition, we find that real risk and term premia and
their associated uncertainties (i.e. realized volatilities) transmit global shocks to country-level debt and equity markets. However, effect magnitudes and signs are heterogeneous across sectors, and highlight the relevance of sector-specific credit market monitoring. For instance, whereas global government credit supply eases financial pressures, acting as safe-haven lending, global household credit supply shocks significantly increase risk and liquidity premia across the globe.

Keywords: global credit supply, credit composition, financial cycle, dynamic factor model

JEL Classification: C32, C38, E44, E51

Suggested Citation

Herwartz, Helmut and Ochsner, Christian and Rohloff, Hannes, How Do Credit Supply Conditions Transmit Across the Globe? (February 5, 2023). Available at SSRN: https://ssrn.com/abstract=4118883 or http://dx.doi.org/10.2139/ssrn.4118883

Helmut Herwartz

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Christian Ochsner (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

Hannes Rohloff

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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