Working Paper: CEPR ID: DP5037
Authors: Ashoka Mody; Lucio Sarno; Mark P. Taylor
Abstract: A growing literature has examined the importance of credit market imperfections for macroeconomic fluctuations, the so-called financial accelerator. A related literature has provided evidence of international and regional co-movements in macroeconomic fluctuations. We tie together these strands of the literature in that we investigate the importance of both cross-country and country-specific credit cycles in explaining output fluctuations. Using data for four major economies and two world regions from 1973 to 2001, we find that both regional and country-specific components of indicators of credit availability are powerful in explaining output movements. This research provides the first empirical evidence of a cross-country financial accelerator.
Keywords: credit cycle; financial accelerator; international business cycles; Kalman filter
JEL Codes: E32; E51; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit market conditions (E44) | economic activity (E20) |
| regional and country-specific bank credit (F34) | GDP growth (O49) |
| bank credit growth (E51) | GDP growth (O49) |
| bank credit components (G21) | GDP growth (O49) |
| increases in bank credit (E51) | increases in GDP growth (O49) |