The Impact of Credit Supply Shocks in the Euro Area: Market-Based Financing Versus Loans

76 Pages Posted: 1 Jul 2022

See all articles by Kristina Barauskaitė

Kristina Barauskaitė

European Central Bank (ECB)

Anh D. M. Nguyen

Bank of Lithuania

Linda Fache Rousová

European Central Bank (ECB)

Lorenzo Cappiello

European Central Bank (ECB)

Date Written: June 1, 2022

Abstract

Using a novel quarterly dataset on debt financing of non-financial corporations, this paper provides the first empirical evaluation of the relative importance of loan and market-based finance (MBF) supply shocks on business cycles in the euro area as a whole and in its five largest countries. In a Bayesian VAR framework, the two credit supply shocks are identified via sign and inequality restrictions. The results suggest that both loan supply and MBF supply play an important role for business cycles. For the euro area, the explanatory power of the two credit supply shocks for GDP growth variations is comparable. However, there is heterogeneity across countries. In particular, in Germany and France, the explanatory power of MBF supply shocks exceeds that of loan supply shocks. Since MBF is mostly provided by non-bank financial intermediaries, the findings suggest that strengthening their resilience — such as through an enhanced macroprudential framework — would support GDP growth.

Keywords: business cycles, credit supply, debt securities, loan, non-bank financial intermediation, VAR

JEL Classification: C32, E32, E44, E51, G2

Suggested Citation

Barauskaitė, Kristina and Nguyen, Anh D. M. and Fache Rousová, Linda and Cappiello, Lorenzo, The Impact of Credit Supply Shocks in the Euro Area: Market-Based Financing Versus Loans (June 1, 2022). ECB Working Paper No. 2022/2673, Available at SSRN: https://ssrn.com/abstract=4151199 or http://dx.doi.org/10.2139/ssrn.4151199

Kristina Barauskaitė (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Anh D. M. Nguyen

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Linda Fache Rousová

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Cappiello

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 8765 (Phone)

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