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FINANCIAL CONDITIONS AND ECONOMIC ACTIVITY: THE POTENTIAL IMPACT OF THE TARGETED LONGER-TERM REFINANCING OPERATIONS (TLTROS)

 

 

 

 

 

Hiona Balfoussia

Bank of Greece

 

Heather D. Gibson

Bank of Greece

 

 

 

 

Abstract

This paper explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al., 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the TLTROs on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.

 

Keywords: financial conditions, monetary policy, financial crisis, credit, non-standard measures.

 

JEL classification: E52, E51, E61, E63, E65

 

 

Acknowledgements: The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece, the ECB or the Eurosystem.

 

 

Correspondence:

Heather D Gibson

Bank of Greece

21 E Venizelos Ave

Athens, 102 50, Greece

Tel no. +302103202415

email: hgibson@bankofgreece.gr

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