Σύνοψη

CONSUMER CREDIT IN AN ERA OF FINANCIAL LIBERALISATION:

AN OVERREACTION TO REPRESSED DEMAND?

Sophocles N. Brissimis

University of Piraeus and Bank of Greece

Eugenie N. Garganas

Bank of Greece

Stephen G. Hall

Bank of Greece, University of Leicester and University of Pretoria

ABSTRACT

In this paper we empirically analyse the factors which determined consumer credit in Greece in the period before and after the financial liberalisation, while accounting for significant changes in structure due to the lifting of credit restrictions and the subsequent impressive boom of consumer loans. We use multivariate cointegration techniques to estimate a vector error correction model (VECM) and identify separate demand and supply relationships for consumer loans. We introduce demand and supply-related shifts in parameters through the inclusion of appropriate dummy variables and trends in the long-run relationships. We partly deviate from the typical Johansen procedure and estimate the model in two steps. We find that the theoretical exclusion and coefficient-size restrictions on the demand and supply cointegrating vectors are valid. Our results are consistent with the operation of a bank lending channel in Greece. We also find that the supply side was mostly responsible for the acceleration of consumer loan growth following credit liberalisation.

JEL classification: E51;G21;O16;C32

Keywords: Consumer credit; Financial liberalisation; Cointegration; Structural breaks

Acknowledgement: We would like to thank Nicholas Garganas, Hercules Voridis, Heather Gibson and Tetti Tzamourani for very helpful comments. The views in the paper do not necessarily reflect those of the Bank of Greece or the Eurosystem.

Correspondence:

Strephen Hall

Department of Economics

Astley Clarke Building

University of Leicester

Leicester, U.K. LE1 7RH