Unconventional monetary policies and credit co-movement in the Eurozone

In response to the Global Financial Crisis, central banks deployed unconventional monetary policy tools as a remedy to restore financial intermediation. While the literature on the transmission channels of such policies is still in its fancy, the present paper is an attempt to uncover the effects of ECB policy measures on credit co-movements in the Eurozone. In a first step, the common factors underlying private credit aggregates are extracted for twelve Euro-area economies over the period 2008-2021. Our analysis reveals that such factors explain large shares of the variability of national credit series. In a second step, we exploit standard monetary BVARs of the identified factor and policy variables, specified as total assets, excess liquidity, shadow rate, and controls. The empirical results show that the responses of the factors to policy shocks are always significant and of the expected sign, with corporate credit co-movement being more sensitive to policy shocks than household credit.