POLICY REGIME CHANGE AND CORPORATE CREDIT IN BULGARIA: ASYMMETRIC SUPPLY AND DEMAND RESPONSES

Abstract

The paper seeks to assess how a major policy regime change – such as the introduction of the currency board in Bulgaria – affects the flow of bank credit to the corporate sector. An attempt is made to identify the determinants of corporate credit separately from the viewpoint of lenders and borrowers. The estimated credit supply and credit demand equations provide empirical evidence of important changes in microeconomic behavioral patterns which can be associated with the policy regime change. The results also suggest a considerable asymmetry in the response of credit supply and credit demand to the policy shock: while the supply shifts were quite pronounced, the patterns of firms’ credit demand remained fairly stable. The policy implications of the detected asymmetry in microeconomic adjustment are also discussed in the paper.