Bank Lending and Asset Prices: Evidence from Bulgaria

Bulgarian National Bank

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Date Published 2008
Version
Primary Author Michael Frömmel
Other Authors Kristina Karagyozova
Theme
Country Bulgaria

Abstract

We examine the dynamics of bank lending to companies and private households in Bulgaria by applying a non-linear Markov switching error correction model (MS-ECM). The MS-ECM provides evidence for multiple structural breaks and improves the estimation results compared to a linear model. In particular we find a more or less pronounced, time-varying relation between bank lending and asset prices. We identify periods when corporate and household loans were driven to a greater extent by supply-side rather than long-run demand-side factors. We also find evidence for a regime switch due to the introduction of administrative measures to curb the credit expansion in early 2005.

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