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Money and Credit Overhang in the Euro Area

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  • J. Liu
  • C.J.M. Kool

Abstract

In this paper, we employ panel co-integration techniques to identify and estimate homogeneous long-run equilibrium relations for money and credit for 10 euro area countries. Over the period 1999-2013, we do find evidence of such long-run relations when accounting for a structural break in 2008. While money and credit follow similar long run trends, the short and medium term relation between money and credit overhang is weak, throwing doubt on the hypothesis that money creating potential drives credit booms. Especially in current account deficit countries, we observe a sizable build-up of credit overhang prior to 2008. Positive (negative) credit overhang is strongly related to net foreign borrowing (lending).

Suggested Citation

  • J. Liu & C.J.M. Kool, 2017. "Money and Credit Overhang in the Euro Area," Working Papers 17-02, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:1702
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    Cited by:

    1. ALBULESCU, Claudiu Tiberiu & Pepin, Dominique, 2018. "Monetary Integration, Money-Demand Stability, and the Role of Monetary Overhang in Forecasting Inflation in CEE Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 33(4), pages 841-879.
    2. Sommarat Chantarat & Atchana Lamsam & Krislert Samphantharak & Bhumjai Tangsawasdirat, 2020. "Household Debt and Delinquency over the Life Cycle," Asian Development Review, MIT Press, vol. 37(1), pages 61-92, March.
    3. Maciej Ryczkowski, 2021. "Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 17-44, January.
    4. Maciej Ryczkowski, 2020. "Money and credit during normal times and house price booms: evidence from time-frequency analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(4), pages 835-861, November.
    5. Claudiu Tiberiu Albulescu & Dominique Pépin, 2018. "Money demand stability, monetary overhang and inflation forecast in the CEE countries," Working Papers hal-01720319, HAL.
    6. Ivo J. M. Arnold, 2022. "Monetary overhang in times of covid: evidence from the euro area," Applied Economics, Taylor & Francis Journals, vol. 54(35), pages 4030-4042, July.

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    More about this item

    Keywords

    macro-economic imbalances; net foreign credit; Panel co-integration;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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