Global Credit Shocks and Real Economies

A rich literature has established the importance of global funding conditions (‘globalliquidity’) for the international financial system (e.g. Borio, McCauley, and McGuire2011). In particular, Eickmeier, Gambacorta, and Hofmann (2014) made an important contribution by presenting a structural decomposition of global liquidity. However,the interplay of structural global liquidity surprises with domestic business cycles hasyet received only minor attention. With given quantifications of global credit demandand supply shocks at hand, we estimate the marginal effects of identified componentsof global liquidity on 43 real economies. Going beyond the aggregate view at globalliquidity provided in Eickmeier et al. (2014), we put a particular focus on the sectoralorigins (i.e. public vs. private) of credit demand/supply components, and rely on factoraugmented vector-autoregressions to trace disaggregated credit shocks through the realeconomy (output, inflation and unemployment). Specifically, business credit supply andgovernment credit demand boost the business cycle, whereas household credit supply isfound to deteriorate output. We find substantial heterogeneity with respect to prevalenceand amplitude of global sectoral credit shocks on real aggregates within the time andcross-sectional (country) dimension