Anna Samarina, University of Groningen, Credit Cycle Coherence in the Eurozone: Was There an Euro Effect?

This paper examines effects of the euro introduction on credit cycle coherence in the Eurozone through six channels. We construct and describe credit cycles for total bank credit, household mortgages and non-financial business loans for 16 EMU economies over 1990–2013. Credit cycle coherence is measured by synchronicity of cycle movements and similarity of their amplitudes. We find that the effect of euro introduction runs through elimination of currency risk and higher capital flows, which decrease coherence of total credit and mortgage credit cycles, but increase coherence of business credit cycles. Falling long-term interest rates contribute to the convergence of mortgage cycles but divergence of total credit cycles. Credit market deregulation is associated with divergence of credit cycle amplitudes, while trade openness has the opposite impact. The findings impinge on monetary policy effectiveness in the Eurozone, with implications for macroprudential policy.