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Economic, institutional and socio-cultural determinants of consumer credit in the context of monetary integration

Author

Listed:
  • Jakub Borowski
  • Krystian Jaworski
  • Jakub Olipra

Abstract

We investigate the determinants of consumer credit in 23 EU countries using panel regressions with fixed effects for 1997–2014. Against our expectations, we found evidence of positive relationship between GDP per capita and volume of consumer credit in relation to nominal GDP. In line with existing literature, our estimates also point to procyclicality of consumer lending and its dependence on young people’s share in population and level of education. Further, consumer credit is driven by development and concentration of the banking sector. The latter relationship supports the effective structure hypothesis. Our results show that credit decreases when supervision is integrated into the central bank. This finding signals that access to consumer credit is harder when political independence of supervision is warranted. Finally, consumer lending is spurred by monetary integration and this result is consistent with permanent income theorem. We were unable to discover a relationship between socio-cultural factors and credit propensity. Identification of this link suggests an avenue for future research. Our results aid in assessing the probability of consumer lending boom and related risk to financial stability. They can be used to increase the effectiveness of macroprudential policy in avoiding excess consumer lending fuelled bymonetary integration.

Suggested Citation

  • Jakub Borowski & Krystian Jaworski & Jakub Olipra, 2017. "Economic, institutional and socio-cultural determinants of consumer credit in the context of monetary integration," NBP Working Papers 254, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:254
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    References listed on IDEAS

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    1. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, February.
    2. Roy, Saktinil & Kemme, David M., 2012. "Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 270-294.
    3. Petroulas, Pavlos, 2007. "The effect of the euro on foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1468-1491, August.
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    Cited by:

    1. Domonkos, Tomas & Fisera, Boris & Siranova, Maria, 2023. "Income inequality as long-term conditioning factor of monetary transmission to bank rates," Economic Modelling, Elsevier, vol. 128(C).
    2. Massimiliano Affinito & Raffaele Santioni & Luca Tomassetti, 2023. "Inside household debt: disentangling mortgages and consumer credit, and household and bank factors. Evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 788, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    lending boom; consumer credit; monetary integration;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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