Credit Channels and Consumption in Europe: Empirical Evidence

30 Pages Posted: 13 Dec 2005

Date Written: June 1999


This paper studies the macroeconomic relevance of credit channels of monetary policy by examining the impact of the external finance premium (EFP), that may vary over the business cycle, on private consumption in Europe. A consumption model incorporates credit channels by assuming that liquidity-constrained consumers not only use current income for financing their consumption, but also external finance, which availability depends on the EFP. The empirical analysis shows an accelerator effect of the EFP on consumption for Germany, Italy and the Netherlands. In contrast, for France, the United Kingdom and Belgium no evidence in favour of this financial propagation mechanism has been found.

Keywords: credit channels, consumption, external finance premium, EU member states

JEL Classification: C22, E21, E52

Suggested Citation

de Bondt, Gabe, Credit Channels and Consumption in Europe: Empirical Evidence (June 1999). BIS Working Paper No. 69. Available at SSRN: or

Gabe De Bondt (Contact Author)

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
+49 69 13440 (Phone)
+44 69 1344 6000 (Fax)

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