The role of credit in international business cycles

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The recent financial crisis raises important issues about the role of credit in international business cycles and the transmission of financial shocks across country borders. This paper investigates the international spillover of US credit shocks and the importance of credit in explaining business cycle fluctuations using a global vector autoregressive (GVAR) model with credit, estimated over the period 1979Q2 to 2006Q4 for 26 major advanced and emerging economies. Results from the country-specific models reveal the importance of bank credit in explaining output growth, changes in inflation and long term interest rates in countries with developed banking sector. The generalized impulse response function (GIRF) for a one standard error negative shock to US real credit provides strong evidence of the spillover of US credit shock to the UK, the Euro area, Japan and other industrialized economies.

JEL-codes: C32 E32 E44 G21 (search for similar items in EconPapers)
Date: 2012-01-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-mac and nep-opm
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: The Role of Credit in International Business Cycles (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1202

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