Title: The Role of Bank Lending in Market-Based and Bank-Based Financial Systems
Abstract: Theoretical models of the role of credit in business cycles and of the transmission mechanism have largely concluded that, given capital market imperfections, credit conditions may amplify and propagate the effect of shocks in the economy. This paper compares the behavior of loans to households and loans to nonfinancial corporations in Austria, Germany, the Netherlands and the United Kingdom. Analyzing credit aggregates in these countries in a framework accounting for diverging economic environments allows for an assessment of how the amplifying and asymmetric effects of credit aggregates differ between market-based and bank-based financial systems. The results show that the state of the economy impacts the way in which shocks are propagated through credit markets. The effects of shocks are smoothed over time in bank-based financial systems irrespective of the economic environment and in market-based systems only during periods of subdued economic growth or tight liquidity conditions. During economic recoveries we observe an amplifying effect in market-based systems. Thus, the deceleration in credit growth in the above-mentioned countries between 1999 and 2003 was mainly demandside rather than supply-side driven, given the overall slowdown of the economy. 1 Credit Markets and the Transmission Mechanism Credit aggregates not only play an important role in the transmission mechanism of monetary policy in general (Bernanke and Blinder, 1988), but they may also be an important indicator of the monetary stance and liquidity conditions at the national level. This may be especially relevant for countries with an exchange rate peg or members of a monetary union,
Publication Year: 2004
Publication Date: 2004-01-01
Language: en
Type: article
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Cited By Count: 5
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