Dynamic Impact of Credit Risk on the Real Economy in European Countries

Le résumé fourni par la source

Using local projection, this study investigates the dynamic effect of credit risk on the real economy in European countries.We obtain credit spread shocks of financial and non-financial institutions in four major eurozone countries by controlling their endogenous changes caused by fear of the global financial market, the European Central Bank's monetary policy and the anxiety of national government debt.Our first finding is that industrial production responses to the non-financial institution credit spread shock are earlier than that for the financial institution shock.Second, in the case of rising credit risk, Germany, France and Finland increase bank lending to domestic companies.Finally, we find that these two tendencies were mainly due to the European common factor by verifying the impulse response functions to idiosyncratic credit spread shocks.We conclude that credit risks in each country are largely common in the eurozone.

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