Credit in the euro area: An empirical investigation using aggregate data

This paper uses multivariate cointegration techniques to estimate a model of aggregate bank lending in the euro area. The model provides a quantitative benchmark for assessing conjunctural developments in loans to the area-wide private sector. Large and protracted deviations of realised loans from the paths implied by the model may reveal information about the emergence of financial imbalances as well as about the state of the economy, particularly about the strength of inflationary pressures. A specific application of the model shows that its error-correction term contains information on future changes in inflation over forecast horizons of relevance for monetary policy.