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What has driven private sector credit developments in Central, Eastern, and Southeastern Europe?

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Abstract
This paper provides an analysis of the long- and short-run determinants of domestic bank lending to the private sector in eleven Central, Eastern and Southeastern European (CESEE) countries, exploring demand versus supply factors, the existence of structural changes over time, the speed of adjustment of credit to macroeconomic fundamentals, as well as differences between lending to households and lending to non-financial firms. We show a strong positive long-run impact of economic activity and a largely negative impact of inflation on the level of credit. Supply factors explain much of the variation in credit growth but their impact differs across subperiods. Periods of bank restructuring or economic crises trigger also adjustment in credit. Macro-prudential analysis should – in the assessment of short-run credit developments – also focus on bank-related credit supply factors and their changing impact over time. If and when credit does not adjust by itself to levels which are in line with economic fundamentals, regulation might be needed to make up for the absence of market self-correction. We also find that before the Great Recession, country-specific factors were more important than global factors for switches between different patterns of credit growth determination. However, the recent crisis had a considerable cross-regional impact, calling also for a stronger cross-border coordination of regulatory measures.
Keywords
private credit, cointegration, Markov switching error correction, credit growth, CESEE

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MLA
Eller, Markus, Michael Frömmel, and Nora Srzentić. “What Has Driven Private Sector Credit Developments in Central, Eastern, and Southeastern Europe?” The Future of Banking in CESEE After the Financial Crisis. Ed. Attila Csajbók & Ernest Gnan. Vol. 1. Gent: Larcier, 2011. 41–59. Print.
APA
Eller, M., Frömmel, M., & Srzentić, N. (2011). What has driven private sector credit developments in Central, Eastern, and Southeastern Europe? In A. Csajbók & E. Gnan (Eds.), The future of banking in CESEE after the financial crisis (Vol. 1, pp. 41–59). Gent: Larcier.
Chicago author-date
Eller, Markus, Michael Frömmel, and Nora Srzentić. 2011. “What Has Driven Private Sector Credit Developments in Central, Eastern, and Southeastern Europe?” In The Future of Banking in CESEE After the Financial Crisis, ed. Attila Csajbók and Ernest Gnan, 1:41–59. Gent: Larcier.
Chicago author-date (all authors)
Eller, Markus, Michael Frömmel, and Nora Srzentić. 2011. “What Has Driven Private Sector Credit Developments in Central, Eastern, and Southeastern Europe?” In The Future of Banking in CESEE After the Financial Crisis, ed. Attila Csajbók and Ernest Gnan, 1:41–59. Gent: Larcier.
Vancouver
1.
Eller M, Frömmel M, Srzentić N. What has driven private sector credit developments in Central, Eastern, and Southeastern Europe? In: Csajbók A, Gnan E, editors. The future of banking in CESEE after the financial crisis. Gent: Larcier; 2011. p. 41–59.
IEEE
[1]
M. Eller, M. Frömmel, and N. Srzentić, “What has driven private sector credit developments in Central, Eastern, and Southeastern Europe?,” in The future of banking in CESEE after the financial crisis, vol. 1, A. Csajbók and E. Gnan, Eds. Gent: Larcier, 2011, pp. 41–59.
@incollection{1203618,
  abstract     = {This paper provides an analysis of the long- and short-run determinants of domestic bank lending to the private sector in eleven Central, Eastern and Southeastern European (CESEE) countries, exploring demand versus supply factors, the existence of structural changes over time, the speed of adjustment of credit to macroeconomic fundamentals, as well as differences between lending to households and lending to non-financial firms. We show a strong positive long-run impact of economic activity and a largely negative impact of inflation on the level of credit. Supply factors explain much of the variation in credit growth but their impact differs across subperiods. Periods of bank restructuring or economic crises trigger also adjustment in credit. Macro-prudential analysis should – in the assessment of short-run credit developments – also focus on bank-related credit supply factors and their changing impact over time. If and when credit does not adjust by itself to levels which are in line with economic fundamentals, regulation might be needed to make up for the absence of market self-correction. We also find that before the Great Recession, country-specific factors were more important than global factors for switches between different patterns of credit growth determination. However, the recent crisis had a considerable cross-regional impact, calling also for a stronger cross-border coordination of regulatory measures.},
  author       = {Eller, Markus and Frömmel, Michael and Srzentić, Nora},
  booktitle    = {The future of banking in CESEE after the financial crisis},
  editor       = {Csajbók, Attila and Gnan, Ernest},
  isbn         = {9783902109569},
  keywords     = {private credit,cointegration,Markov switching error correction,credit growth,CESEE},
  language     = {eng},
  pages        = {41--59},
  publisher    = {Larcier},
  series       = {SUERF Studies},
  title        = {What has driven private sector credit developments in Central, Eastern, and Southeastern Europe?},
  volume       = {1},
  year         = {2011},
}