Business fixed investment and credit market frictions: A VECM approach for Hungary

Arbeitspapier

The aim of this paper is to model the interaction between the loan market and real activity, while financial frictions are explicitly taken into account. The econometric methodology used is VECM. Johansen's approach is employed to allow for multiple cointegration. Financial frictions are captured by including balance sheet indicators of firms and banks (cash flow and the VIX index) which move the loan supply curve. For the non-financial corporate sector 3 long-run equilibrium relationships were found, each corresponding to a reduced form investment, a loan demand and a loan supply equation, where loan supply is determined by the cost of borrowing, and the cash flow of firms or the VIX index. In contrast, for manufacturing no evidence was found concerning the significance of financial frictions. Impulse response analysis is used to calculate the real effects of a loan supply shock. Various tax measures and the introduction of inflation targeting were found to have significant impact on investment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MNB Working Papers ; No. 2011/1

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Financial Markets and the Macroeconomy ; Money Supply; Credit; Money Multipliers ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: aggregate investment ; financial frictions ; cointegration ; error correction models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Endrész, Marianna
• Event: Veröffentlichung
• (who): Magyar Nemzeti Bank
• (where): Budapest
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/83606
• Last update: 10.03.2025, 11:42 AM CET