The macroeconomic impact of financial fragmentation in the euro area: Which role for credit supply?

Bijsterbosch, Martin; Falagiarda, Matteo

doi:10.1016/j.jimonfin.2015.02.013

Cited by 72 publications

(78 citation statements)

References 37 publications

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“…The macroeconomic effects of fragmented credit supply growth were examined by Bijsterbosch and Falagiarda (2015). There are a few recent studies examining the degree and the effects of fragmentation in different euro area markets.…”

Section: The Role Of Financial Fragmentationmentioning

confidence: 99%

“…There are a few recent studies examining the degree and the effects of fragmentation in different euro area markets. The macroeconomic effects of fragmented credit supply growth were examined by Bijsterbosch and Falagiarda (2015). They observed a strong rise in cross-country heterogeneity associated with the debt crisis and the weak balance sheets of euro area periphery banks.…”

Section: The Role Of Financial Fragmentationmentioning

confidence: 99%

“…2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015). 2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015).…”

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confidence: 99%

“…ENDNOTES 1 Cyprus, Estonia, Latvia, Malta, and Slovenia are not included in our sample because bank-specific data were not fully available for these countries. 2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015).…”

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Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?

2018

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The objectives of this study are, first, to examine the causes of nonperforming loans (NPLs) in the euro area for the period 2003Q1 to 2016Q1 and, second, to investigate if there is fragmentation between core and periphery banking markets. By employing both fully modified ordinary least squares (FMOLS) and Bayesian panel‐cointegration vector autoregression techniques, we estimate the long‐run effects of both bank‐specific and macroeconomic factors on NPLs. We find that NPLs in the euro area have performed an upward (much higher in the periphery) shift after 2008 and are mostly related to worsening macroeconomic conditions. A chi‐square test comparing the estimated coefficients for the core and periphery NPLs rejects the hypothesis of equality revealing another aspect of financial fragmentation in the euro area that leaves the periphery more vulnerable. Such findings can be helpful when designing macroprudential as well as NPL resolution policies.

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Section: The Role Of Financial Fragmentationmentioning

confidence: 99%

Section: The Role Of Financial Fragmentationmentioning

confidence: 99%

mentioning

confidence: 99%

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confidence: 99%

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Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?

2018

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“…The central bank reacts to an adverse aggregate supply shock by increasing the interest rate. In the VAR literature, similar restrictions both for aggregate demand and supply shocks were employed by Peersman (2005) Greenwood-Nimmo and Tarassow, 2016;Eickmeier et al, 2009;Duchi and Elbourne, 2016;Bijsterbosch and Falagiarda, 2015;Finlay and Jääskelä, 2014;Peersman, 2005;Hristov et al, 2012;while, Straub and Peersman, 2006;Canova and Paustian, 2011 provided the evidence from DSGE models). The imposed restriction on credit is in line with evidence from DSGE models (e.g., Alpanda andZubairy, 2017 andʹt Veld et al, 2014).…”

Section: Insert Tables 1a and 1b Herementioning

confidence: 97%

The Real Effects of Loan-To-Value Limits: Empirical Evidence from Korea

Pontines¹

2020

SSRN Journal

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This study adds to a recent and growing literature that assesses the effects of macroprudential policy. We compare the effects of monetary policy and loan-to-value ratio shocks for Korea, an inflation targeting economy and an active user of loan-to-value limits. We identify shocks using sign-restricted structural VARs and rely on a recent approach within this method to conduct structural inference. This study finds that both monetary policy and loan-to-value ratio shocks have effects on different measures of credit, i.e., real bank credit, real total credit and real household credit. We also find that both shocks have non-negligible effects on real house prices, including effects on real output, real consumption and real investment. We do, however, find that loan-to-value ratio shocks have negligible effects on the price level. These findings indicate that for the period covered by this study, limits on loan-to-value achieved their financial stability objectives in Korea in terms of limiting credit and house price appreciation under an inflation targeting regime. Furthermore, it attained these objectives without posing any threat to its price stability objective. Overall, these findings suggest that limits on loan-tovalue have important aggregate consequences despite it being a sectoral, targeted policy instrument. AbstractThis study adds to a recent and growing literature that assesses the effects of macroprudential policy. We compare the effects of monetary policy and loan-to-value ratio shocks for Korea, an inflation targeting economy and an active user of loan-tovalue limits. We identify shocks using sign-restricted structural VARs and rely on a recent approach within this method to conduct structural inference. This study finds that both monetary policy and loan-to-value ratio shocks have effects on different measures of credit, i.e., real bank credit, real total credit and real household credit. We also find that both shocks have non-negligible effects on real house prices, including effects on real output, real consumption and real investment. We do, however, find that loan-to-value ratio shocks have negligible effects on the price level. These findings indicate that for the period covered by this study, limits on loan-to-value achieved their financial stability objectives in Korea in terms of limiting credit and house price appreciation under an inflation targeting regime. Furthermore, it attained these objectives without posing any threat to its price stability objective. Overall, these findings suggest that limits on loan-to-value have important aggregate consequences despite it being a sectoral, targeted policy instrument.JEL Codes: E31, E32, E52, E58, G28

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The relationship between excessive lending, risk premium and risk‐taking: Evidence from European banks

2021

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Banks normally trade-off the amount of loans created by the amount of risk piled up in their assets portfolios. However, their performance can induce a 'search for yield' or 'gamble to survive' behaviour. Using sample of 149 European banks during the period 2001-2016, we show that the risk management hypothesis holds for the period after the 2007-2008 financial crisis and for large banks. Contrarily, the moral hazard hypothesis, under which banks practise excessive lending to relatively risky borrowers that pay higher premium but increase their credit risk, is supported in the pre-crisis period and for small banks. Additionally, we provide important implications to suggest that the post-crisis regulations have restrained banks with poor performance from the 'gamble to survive' behaviour.

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The macroeconomic impact of financial fragmentation in the euro area: Which role for credit supply?

Cited by 72 publications

References 37 publications

Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?

Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?

The Real Effects of Loan-To-Value Limits: Empirical Evidence from Korea

The relationship between excessive lending, risk premium and risk‐taking: Evidence from European banks

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