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2017 | OriginalPaper | Chapter

11. Adverse Credit Supply Shocks and Weak Economic Growth

Authors : Nombulelo Gumata, Eliphas Ndou

Published in: Bank Credit Extension and Real Economic Activity in South Africa

Publisher: Springer International Publishing

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Abstract

  • •  Know the benefits of using the pure sign restriction and penalty function sign restriction approaches in VAR
  • •  Distinguish between adverse credit supply effects, tighter monetary policy and adverse credit demand shocks on lending spreads, GDP and credit growth
  • •  Show that adverse credit supply shock is partly responsible for the weak economic growth recovery and elevated loan spreads
  • •  Determine the role of global economic uncertainty shocks on elevated lending spreads

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previous chapter The Lending-Deposit Rate Spread and the Bank Pricing Behavior
next chapter Credit Supply Shocks and Real Economic Activity
Appendix
Available only for authorised users
Footnotes
1
See Bernanke and Gertler (1995), Bernanke et al. (1999), Kiyotaki and Moore (1997).
 
2
Micro-data on banks’ balance sheets and lending criteria as reported by banks can be used to distinguish between demand and supply shocks.
 
3
See Hristov et al. (2012), Gertler and Karadi (2011), Curdia and Woodford (2010).
 
4
This section does not engage in an in-depth discussion of determining the South African micro-credit market structure. Instead, a distinction between the effects of the (price?) elasticity the credit loan supply curve is demonstrated.
 
5
See Walentin (2014).
 
6
We use two lags selected by AIC. The variables are estimated using the ordering stated. However, we used different ordering to assess for robustness and the results were robust to different ordering. The results were also robust to various lags. We used Monte Carlo simulation with 10,000 draws. We also controlled for the effects of the recession in 2009Q1 to 2009Q3.
 
7
The approach used in the estimations follows the work that used dummy variables to determine the impact of wars and other shocks on economic growth.
 
8
For further details see Uhlig (2005), Mountford and Uhlig (2005), Rafiq and Mallick (2008), amongst others.
 
9
For further details see Hristov et al. (2012).
 
10
For further reading, see Stein (2014) and Altunbas et al. (2014).
 
11
The counterfactual values refer to values that we get after removing (shutting off) the contributions of the credit supply shock to the variables of interest. When the actual exceeds the counterfactual it implies that adverse credit supply shock made positive contributions to the variable of interest.
 
12
We conclude similarly when replacing the repo rate with repo rate gap calculated based on the HP filtered gap.
 
13
We present the results in Table A8.1 below. It is evident that the signs and the significance of the impact of the repo rate, credit growth and inflation vary significantly below and above the thresholds for margins. The transition functions are shown in Fig. A8.1.
 
14
We say the margins are in high state if margins exceed the threshold values given in Table A8.2. To calculate the long-run effects on economic growth we only use the values that are significant, as shown in Table A8.1.
 
Literature
Altunbasa, Y., Gambacorta, L., & Marques-Ibanezc, D. (2014). Does monetary policy affect bank risk? International Journal of Central Banking, 10(1), 95–135.
Appleyard, D. R., Field, A., & Cobb, S. L. (2008). International economics (6th ed.). Macgraw-Hill Irwin.
Bernanke, B. S., & Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9, 27–48.CrossRef
Bernanke, B. S., Gertler, M., & Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. In M. Woodford & J. Taylor (Eds.), Handbook of macroeconomics. Amsterdam: North-Holland.
Curdia, V., & Woodford, M. (2010). Credit spreads and monetary policy (NBER working paper series 15289).
Eickmeier, S., Gambacorta, L., & Hofmann, B. (2014). Understanding global liquidity. European Economic Review, 68, 1–18.CrossRef
Gertler, M., & Karadi, P. (2011). A model of unconventional monetary policy. Journal of Monetary Economics, 58, 17–34.CrossRef
Hristov, N., Huselwig, O., & Wollmershauser, T. (2012). Loan supply shocks during the financial crisis: Evidence for the Euro area. Journal of International Money and Finance, 31, 569–592.CrossRef
Kiyotaki, N., & Moore, J. (1997). Credit cycles. The Journal of Political Economy, 105(2), 211–248.CrossRef
Nikolay Hristova, N., Hülsewiga, O., & Wollmershäusera, T. (2012). Loan supply shocks during the financial crisis: Evidence for the euro area. Journal of International Money and Finance, 31(3), 569–592.CrossRef
Rafiq, M. S., & Mallick, S. K. (2008). The effect of monetary policy on output in EMU3: A sign restriction approach. Journal of Macroeconomics, 30(4), 1756–1791.CrossRef
Stein, J. C. (2014). Comments on “market tantrums and monetary policy”, speech at the 2014 U.S. Monetary Policy Forum, New York, February 28, 2014.
Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2005), 381–419.
Walentin, K. (2014). Business cycle implications of mortgage spreads. Journal of Monetary Economics, 67, 62–77.CrossRef
Metadata
Title
Adverse Credit Supply Shocks and Weak Economic Growth
Authors
Nombulelo Gumata
Eliphas Ndou
Copyright Year
2017
Book
Bank Credit Extension and Real Economic Activity in South Africa

Print ISBN: 978-3-319-43550-3

Electronic ISBN: 978-3-319-43551-0

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-43551-0_11