Moreover it may be noted that whereas the number of

Info icon This preview shows pages 4–5. Sign up to view the full content.

View Full Document Right Arrow Icon
are not able to raise funds in the capital markets. Moreover, it may be noted that whereas the number of SMEs to the total number of firms is roughly equal in the US and the euro area21, in terms of the number of employees on the payroll in SMEs compared to the total number of employed people the SME sector is substantially more important in the euro area (with a percentage of 67% of the total number of employees) compared with the US (43%). All in all, in light of such structural differences with respect to the role of banks in the financing of enterprises, in particular, and the
Image of page 4

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
private sector more broadly, it should not be surprising that the impact on real economic activity from shocks to banks supply of credit are more pronounced in the euro area than in the US. Our findings hence seem to corroborate apriori expectations based on the Cross-Atlantic differences in financial structures.22 Finally, it cannot of course be excluded that the discrepancy between our findings and those of Driscoll (2004) to some extent also pertains to the different sample periods considered in the two studies. Hence, whereas Driscoll.s sample period is 1965-1998 our sample covers a more limited period of 1999-2008. Concerns may also be raised as to the fact that our sample partly overlaps with the financial crisis and as a result, it could be questioned whether our results are largely driven by dynamics triggered by the crisis. However, we do not think this is a major issue as our sample ends in Q1 2008 and thus does not include data for the intensification of the crisis occurring in Q3 2008 onwards. Conclusion: To conclude, using the framework derived by Driscoll (2004), this paper has pro- vided empirical evidence for the existence of a bank lending channel of monetary policy transmission in the euro area. In addition, and in contrast to recent findings for the US, we find that in the euro area changes in the supply of credit, both in terms of volumes and in terms of credit standards applied on loans to enterprises, have significant effects on real economic activity. This highlights the importance of including the monitoring of credit developments in the toolkit of monetary policy and underpins the reasoning behind giving monetary and credit analysis a prominent role in the monetary policy strategy of the ECB. These findings furthermore point to the potential negative repercussions on real economic growth arising from the financial crisis that erupted in mid-2007 and which resulted in serious impairments of euro area banks balance sheets and the need for banks to deliver and possibly to reduce their supply of loans. Also in this light and notwithstanding the findings of this pa- per, further research is needed to enhance the knowledge of the dynamic relationships between the situation of the financial sector, credit provision, real economic activity and inflation.
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern