Credit demand and supply shocks in Italy during the Great Recession

  • Andrea Cipollini University of Palermo
  • Fabio Parla
Keywords: Structural VAR; Identification through heteroscedasticity; Credit shocks; Regional economic activity;

Abstract

In this paper, we use Structural VAR analysis to disentangle credit demand and supply shocks and their effect on real economic activity in Italy during the 2008-2014 crisis period. The three endogenous variables considered are the loan interest rate, the loans growth rate and the employment to population ratio. The data are observed at annual frequency for each of 103 Italian provinces. The structural shocks are identified through heteroscedasticity, by letting the variance of the shocks to switch across four Italian macro-regions: North, Centre, South and Islands. Sign restrictions are used to interpret ex post the structural shocks. The empirical findings suggest a more important role of credit supply shocks in shaping the level of real economic activity. Furthermore, the results show that credit crunch hits the North of Italy less than the remaining macro-regions, especially the South-Italy.

Published
2017-12-07