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Empirical Investigation of the Effect of Bank Long Term Debt on Loans and Output in the Euro-zone

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  • Claire-Océane Chevallier

    (CREA, Université du Luxembourg)

Abstract

The objective of this study is to empirically test whether bank loan supply affects output in the Euro-zone from 1999Q1 to 2014Q4. It uses shocks to bank deposits and shocks to bank wholesale debt issuance as instruments in a linear two stage least square specification to evaluate the role of loan supply in affecting output. The findings show that banks' changed preferences for wholesale debt funding are important determinants of loan supply, in particular during the crisis. I also find evidence that loan supply affects output significantly and positively. The validity of the model is also tested by verifying the linearity assumption using non-parametric estimation techniques.

Suggested Citation

  • Claire-Océane Chevallier, 2017. "Empirical Investigation of the Effect of Bank Long Term Debt on Loans and Output in the Euro-zone," DEM Discussion Paper Series 17-04, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:17-04
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank lending channel; Bank funding; Bond issuance; Credit; Euro-area;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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