The seminar will be held in the Visitor Centre at 10:30 am, in English language.
Michael Frömmel (Leibniz Universität Hannover, MNB visiting researcher)
Abstract
We examine the dynamics of bank lending to the private sector for countries of the Euro area by applying a Markov switching error correction model. We identify for Belgium, Germany, Ireland and Portugal stable, mean reverting regimes and unstable regimes with no tendency to return to the long term credit demand equation, whereas for some other countries there is only weak evidence. Furthermore, for these as well as for other countries we detect in the less stable regimes a strong co-movement with the development of the stock market. We interpret this as evidence for constraints in bank lending. In contrast, the banks’ capital seems to have only marginal impact on the lending behaviour.
We examine the dynamics of bank lending to companies and private households in Bulgaria by applying a non-linear Markov switching error correction model (MS-ECM). Our results provide evidence for multiple structural breaks and improve the estimation results compared to a linear model. In particular we find a more or less pronounced, time-varying relation between bank lending and asset prices. We identify periods when corporate and household credit were driven to a greater extent by supply-side rather than long-run demand-side factors. We also find an evidence for a regime switch due to the introduction of administrative measures to curb the credit expansion in early 2005.