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From Subprime Loans to Subprime Growth? Evidence for the Euro Area

From Subprime Loans to Subprime Growth? Evidence for the Euro Area by Martin Cihák
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The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a cutback in bank loan supply has a negative impact on economic activity; (iii) a positive shock to the corporate bond spread lowers industrial output; and (iv) risk indicators for the banking, corporate, and public sectors show an improvement beginning in 2002–03, followed by a major deterioration since 2007. These estimates imply that the currently estimated bank losses would subtract some 2 percentage points from the euro area output (but with considerable uncertainty around the estimates).
International Monetary Fund; March 2009
35 pages; ISBN 9781452766218
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Title: From Subprime Loans to Subprime Growth? Evidence for the Euro Area
Author: Martin Cihák; Petya Koeva Brooks