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Title: Bank capital and credit supply shock in Ireland: A narrative approach Authors:  Fabio Parla - Central Bank of Ireland (Ireland) [presenting]
Martin Obrien - Central Bank of Ireland (Ireland)
Sofia Velasco - Central Bank of Ireland (Ireland)
Maria Woods - Central Bank of Ireland (Ireland)
Michael Wosser - Central Bank of Ireland (Ireland)
Abstract: Structural Vector Autoregression analysis is suggested to be used in order to assess the effects of changes in bank capital in Ireland, over the 1998-2017 time span. In particular, the focus is on estimating to what extent an exogenous disturbance to banks' capital impacts on a set of macro-financial variables. The endogenous variables considered are proxies of economic activity, property price, credit aggregates and bank capital, observed at quarterly frequency. The positive structural exogenous shock hitting the VAR is identified by combining theory-driven sign restrictions and narrative information. The empirical findings suggest that a positive shock to bank's capital, interpreted as a negative credit supply shock, has a non-negligible impact on the macroeconomic variables. We find significant impacts on variables such as credit, interest rate and house prices in response to the exogenous shock to capital.