CBA Analysis no. 49

The credit crunch is the appearance of heavy non-price restrictions in the supply of credit. It cannot be robustly identified on the basis of descriptive statistics because there is no way to differentiate between the "normal" cyclically appearing credit pinch and the "emergency" of credit crunch. A solution to the problem of identification requires a rigorous and precise control of the volume and the risk (quality) of the demand faced by enterprises, as well as control of the impact of changes in the cost of refinancing the banks. When the likelihood of difficulty of enterprises in accessing credit is identified after the control of volume and demand risk, and the shocks of the costs of refinancing, the residual can be attributed to the autonomous behavior of banks and taken as a credit crunch if the intensity of the phenomenon is strong and durable. In this case, there are chances that banks will not be able to recognize a healthy demand for loans, which may have a negative effect on economic growth.

 In addition to the interpretation of the term, this paper provides an overview of the possible analytical approaches to the identification of the credit crunch. In that sense we can distinguish between macroeconomic approaches, which are, however, rejected because of the unclear definition of macroeconomic variables when it comes to risk, and the microeconomic approaches, which include approaches based on the data on individual bank loans and the approaches based on the data from business surveys. A review of selected papers representing those two groups of approaches in the literature, as well as the works that try to integrate both microeconomic paths, is given. Finally, the possibility of applying those research methods in Croatia is described. The conclusion is that both microeconomic methods are applicable in Croatia.


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