This paper uses counterfactual scenario analysis to assess whether the sharp slowdown in bank lending to non-financial corporations in the euro area, following the ECB's monetary tightening in response to the post-pandemic high inflation, was in line with historical regularities.
The analysis shows that the credit weakening was stronger than expected on the basis of the actual development of interest rates and business cycle variables, drivers that are usually sufficient to adequately describe loan dynamics. The gap between observed and counterfactual lending growth narrows sharply when the latter is obtained by also taking account of credit supply and demand indicators, suggesting the activation of amplification mechanisms of the monetary impulse through the credit channel.
