How Do Credit Supply Shocks Propagate Internationally? A Gvar Approach

By Sandra Eickmeier, T. Ng. Social Science Research Network, 2015

266 citations recorded by the source corpus.

We study how credit supply shocks in the US, the euro area and Japan are transmitted to other economies. We use the recently-developed GVAR approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983-2009. We experiment with inter-country links that distinguish bilateral trade, portfolio investment, foreign direct investment and banking exposures, as well as asset-side vs. liability-side financial channels. Capturing both bilateral trade and inward foreign direct investment or outward banking claim exposures in a GVAR fits the data better than using trade weights only. We use sign restrictions on the short-run impulse responses to financial shocks that have the effect of reducing credit supply to the private sector. We find that negative US credit supply shocks have stronger negative effects on domestic and foreign GDP, compared to credit supply shocks from the euro area and Japan. Domestic and foreign credit and equity markets respond clearly to the credit supply shocks. Exchange rate responses are consistent with a "flight to quality" to the US dollar. The UK, another international financial centre, is also responsive to the shocks. These results are robust to the exclusion of the 2007-09 crisis episode from the sample.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/37cded46b53ea0e0cd8c6187a213b83e660a2acc

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Citations in the corpus

Determinants of Global Spillovers from US Monetary Policy (2015, methodology): “In the baseline specification I consider the effects of US monetary policy shocks identified by sign restrictions following the approach of Eickmeier and Ng (2011). Consider the global representation of the MCSGVAR model”
Identification of Financial Factors in Economic Fluctuations (2019, unknown): “(2011), Eickmeier and Ng (2011), Eickmeier et al. (2011), Fornari and Stracca (2011), Hristov et al.”
What Drives Oil Prices? Emerging versus Developed Economies (2012, unknown): “Although this shock captures all other oil (11)Restrictions on one variable relative to another have been applied previously by, among others, Farrant and Peersman (2006) and Eickmeier and Ng (2011) but in a very different context.”
Financial Crisis, US Unconventional Monetary Policy and International Spillovers (2015, unknown): “One notable feature is our modelling of cross-country linkages using both the financial and trade linkages, similar to Chen, Gray, N’Diaye, Oura and Tamirisa (2010) and Eickmeier and Ng (2011). We gauge the strength of the time-varying financial interdependence across economies based on the flow dat”
Loan Supply Shocks and the Business Cycle (2017, unknown): “…such as aggregate supply shocks or monetary policy shocks they have to include restrictions on additional variables (such as various spreads, as Eickmeier and Ng (2011), who also impose restrictions on the sign of the response of the spread between the corporate bond yield and long-term…”
Spillovers of U.S. unconventional monetary policy to emerging markets: The role of capital flows (2017, background): “10 of the U.S. in global financial markets (see, for instance, Eickmeier and Ng, 2015, Georgiadis, 2015a, or Chen et al., 2015).”
Theory and Practice of GVAR Modeling (2016, unknown): “The role of credit in the international business cycles is investigated using a GVAR approach in Eickmeier and Ng (2011), Xu (2012) and Konstantakis and Michaelides (2014). The first paper focuses on the transmission of credit supply shocks in the US, the euro area and Japan. Using sign restrictions”