The 2007–2008 financial crisis and the subsequent prolonged recovery regained attention on the formerly underestimated role of financial factors. The present study outlines a methodology to quantify the behavioral factors behind credit frictions that affect the real economy through the bank lending channel. The central pillar of the study is a microanalysis including individual monetary financial institutions' balance sheet data in the Eurozone economy. The study employs an external instrument obtained by the fixed-effects regression model to identify a (de)leverage shock in a proxy SVAR model. Preliminary results suggest that the decreasing private sector's financial leverage driven by demand factors is relevant to the transmission mechanism in affecting the real economy.
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