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The Influence of Credit Growth on Output Growth in Iceland: A VEC Model Approach

Vestmann, Andrea LU and Viebrock, Janina LU (2018) NEKN01 20181
Department of Economics
Abstract
In this thesis we used a Vector Error Correction (VEC) model to analyse whether changes in credit growth have a significant effect on output in Iceland using monthly data for the period 1997-2017. Both our results from the error variance decompositions and the impulse response functions suggest that changes in credit and exports have a large impact on Icelandic output. We conclude that changes in credit activity do affect Icelandic macroeconomic variables. There is a statistically significant relationship between output and credit growth and hence the ‘credit view’ is supported in the case of Iceland. This highlights the importance of implementing macroprudential rules that can minimize severe economic fluctuations caused by excessive... (More)
In this thesis we used a Vector Error Correction (VEC) model to analyse whether changes in credit growth have a significant effect on output in Iceland using monthly data for the period 1997-2017. Both our results from the error variance decompositions and the impulse response functions suggest that changes in credit and exports have a large impact on Icelandic output. We conclude that changes in credit activity do affect Icelandic macroeconomic variables. There is a statistically significant relationship between output and credit growth and hence the ‘credit view’ is supported in the case of Iceland. This highlights the importance of implementing macroprudential rules that can minimize severe economic fluctuations caused by excessive credit growth. (Less)
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author
Vestmann, Andrea LU and Viebrock, Janina LU
supervisor
organization
course
NEKN01 20181
year
type
H1 - Master's Degree (One Year)
subject
keywords
output growth, credit growth, Iceland, VAR model, VEC model, credit view, macroprudential policy.
language
English
id
8949442
date added to LUP
2018-07-03 14:21:16
date last changed
2018-07-03 14:21:16
@misc{8949442,
  abstract     = {In this thesis we used a Vector Error Correction (VEC) model to analyse whether changes in credit growth have a significant effect on output in Iceland using monthly data for the period 1997-2017. Both our results from the error variance decompositions and the impulse response functions suggest that changes in credit and exports have a large impact on Icelandic output. We conclude that changes in credit activity do affect Icelandic macroeconomic variables. There is a statistically significant relationship between output and credit growth and hence the ‘credit view’ is supported in the case of Iceland. This highlights the importance of implementing macroprudential rules that can minimize severe economic fluctuations caused by excessive credit growth.},
  author       = {Vestmann, Andrea and Viebrock, Janina},
  keyword      = {output growth,credit growth,Iceland,VAR model,VEC model,credit view,macroprudential policy.},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Influence of Credit Growth on Output Growth in Iceland: A VEC Model Approach},
  year         = {2018},
}