Credit Crunch in Germany?
This paper evaluates whether the German economy was affected by a credit crunch from 2001 to 2003, i.e. a supply-side restriction of loans that is not in line with market interest rates and profitability of investment projects. With the help of a disequilibrium-model, we calculate a credit supply and a demand-function. We have compared estimated demand with estimated supply, finding evidence for a substantial supply side restriction of the German credit market, particularly since the end of 2002. The main reason for this restriction is the drop in earnings in the banking sector. Applying the model to Großbanken (big banks) and other credit institutions separately shows that the former were more affected than the latter.
Nehls, H. and T. Schmidt (2004), Credit Crunch in Germany?. Credit and Capital Markets – Kredit und Kapital, 37, 4, 479-499