External financing and economic activity in the euro area - Are bank loans special?

Category: Money and Macro Brown Bag Seminar
When: 11 August 2016
, 12:00
 - 13:00
Where: Boston (HoF 2.45)
Speaker: Iñaki Aldasoro (Goethe University Frankfurt)

Over the last years the composition of flows of external financing to the non- financial private sector of the euro area has significantly shifted away from bank loans to other sources of financing such as equity, debt securities and loans from non-banks. Against this background, we investigate whether shocks to bank loans and shocks to other sources of financing differ in their impact on the real economy using a VAR identified with a mix of sign and zero restrictions. We find that shocks to bank loan supply and demand induce a hump-shaped reaction of real GDP and have a persistent impact on the GDP deflator. In contrast, shocks to the supply of and demand for other sources of financing have hardly any influence on real output and prices. Accordingly, a substitution of bank loans by other sources of financing might have negative macroeconomic repercussions.