Burcu Erdogan, Charlotte Senftleben
The availability of credit has been an issue of particular concern in Germany during the financial meltdown of 2008-2009. Contraction of loans, especially business loans, together with an ongoing recession led to a growing fear about an upcoming shortage in lending. This paper analyses existence of a possible "credit crunch" in Germany by employing a disequilibrium model. The downward course of credit growth might be due to either weak demand of loans stemming from recession or supply side factors. Hence we attempt to disentangle credit supply from demand with our disequilibrium model using quarterly data from 2000q1 to 2009q3. With the outbreak of the financial crisis in the fourth quarter of 2008, we observe a supply dependent credit crunch. The slowdown in lending is not only a result of weak demand. However, there is also evidence that at the moment, credit markets are at equilibrium in Germany. The results do not reflect a "current" credit crunch. To detect the potentialrisk of a credit crunch during the forecast period from 2009q4 to 2010q4, we further anticipate the impact of various scenarios on lending. Our analysis offer that any deterioration of equity capital of banks results in a supply driven credit crunch. This would delay the economic recovery; hence it is crucial for policy makers in Germany to take necessary measures.
JEL-Classification: C32;E44;E51;G21
Keywords: Credit Crunch, Credit Demand, Credit Supply, Germany, Disequilibrium Model, Maximum Likelihood Method
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