DISEQUILIBRIUM MODEL APPLIED ON THE CREDIT MARKET IN THE CZECH REPUBLIC

The aim of the paper is to apply a disequilibrium model on credit market in The Czech Republic and to analyze credit demand and credit supply in period 1994 - 2007. We aim to answer the following questions: What are the main determinants that drive the demand and supply in the Czech Republic's credit market? What was the development of credit demand and credit supply? Whether the slowdown in the growth of the volume of credits disbursed was caused by demand or supply factors. The degree of equilibrium in the Czech credit market is assessed subsequently. We came to conclusion that the credit demand in the Czech Republic is a function of one-quarter-lagged gross domestic product, investments, capital market index PX50 and interest rate on loans. The effects of all variables except for interest rate are in line with expectations. Credit supply in the Czech Republic is a function of deposits, industrial production, interest rate on loans and classified loans. The results suggest that a considerable disequilibrium was typical for Czech credit market over the last ten years. During most of the period, the level of provided loans was determined by credit demand. From the second quarter of 2006, the volume of loans provided has been determined by credit supply. The decline in the volume of credits disbursed during 1998 2002 was caused by supply factors. Furthermore, we found that the Czech credit market suffered from a credit crunch in the first half of 2001 when the credit demand overhang substantially exceeded the limit of double standard deviation.