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Measuring Credit Demand and Supply: A Bayesian Model with an Application to Greece (2003–2011)

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  • Vouldis Angelos T.

    (European Central Bank, Frankfurt, Germany)

Abstract

Motivated by the linkage between credit and growth in the Greek economy and the deceleration of credit since the financial crisis, this paper studies the evolution of credit demand and supply in Greece during the period 2003M1–2011M3. A model of the credit market is explored which disentangles demand and supply. A Bayesian estimation methodology with data augmentation for the latent variables is proposed. The analysis is carried out separately for each type of loan (short- and long-term business loans, consumer loans and mortgages) enabling the comparative study of the credit rationing and supply constraint effects across loan categories. The results indicate that, for all loan categories, excess demand characterized the boom period. After the intensification of the debt crisis, long-term business loans, consumer loans and mortgages were constrained from the supply side, however, demand for short-term business loans has slowed down more than supply, reflecting businesses’ need for stable funding. Finally, the structural effects of the crisis are investigated. The present paper aims to contribute to the strand of literature investigating the tools to analyse credit developments by formulating an enhanced and flexible version of a model which disentangles credit demand and supply and enables the monitoring of the evolution of financial imbalances.

Suggested Citation

  • Vouldis Angelos T., 2018. "Measuring Credit Demand and Supply: A Bayesian Model with an Application to Greece (2003–2011)," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 238(1), pages 33-76, February.
    • Handle: RePEc:jns:jbstat:v:238:y:2018:i:1:p:33-76:n:8
    DOI: 10.1515/jbnst-2017-0108
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    Keywords

    credit rationing; bayesian methods; economic crises;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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