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A sectoral framework for analyzing money, credit and unconventional monetary policy

Author

Listed:
  • Cloyne, James

    () (Bank of England)

  • Thomas, Ryland

    () (Bank of England)

  • Tuckett, Alex

    () (Bank of England)

  • Wills, Samuel

    () (Bank of England)

Abstract

This paper sets out an empirical framework for examining the dynamics of money and credit at a sectoral level. Our purpose is to understand and monitor the transmission mechanisms of different policies that affect the financial sector, with an eye to practical policy analysis. We use the banking system’s balance sheet as an organising framework and model the stocks of broad money and credit held by different sectors. Each sector is modelled as a separate block with money, credit, and sectoral expenditure modelled jointly together with the relevant financial yields. The sectors are then knitted together using aggregate relationships and identities. Overall the model can be thought of as an estimated disaggregated version of the IS-LM-CC model which additionally incorporates the principle that ‘loans create deposits’. We illustrate, by example, how this framework can be used in practice: first by examining the sectoral transmission of quantitative easing and second, the effect of disturbances to credit markets. We also discuss how other policy tools, such as the Funding for Lending Scheme and macroprudential policies, could be examined in our framework.

Suggested Citation

  • Cloyne, James & Thomas, Ryland & Tuckett, Alex & Wills, Samuel, 2015. "A sectoral framework for analyzing money, credit and unconventional monetary policy," Bank of England working papers 556, Bank of England.
  • Handle: RePEc:boe:boeewp:0556
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    References listed on IDEAS

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    Cited by:

    1. Abeer Reza & Eric Santor & Lena Suchanek, 2015. "Quantitative Easing as a Policy Tool Under the Effective Lower Bound," Discussion Papers 15-14, Bank of Canada.
    2. David Hendry & John Muellbauer, 2017. "The future of macroeconomics: Macro theory and models at the Bank of England," Economics Series Working Papers 832, University of Oxford, Department of Economics.
    3. John Muellbauer, 2016. "Macroeconomics and Consumption," Economics Series Working Papers Paper 811, University of Oxford, Department of Economics.
    4. Muellbauer, John & Geiger, Felix & Rupprecht, Manuel, 2016. "The housing market, household portfolios and the German consumer," Working Paper Series 1904, European Central Bank.

    More about this item

    Keywords

    Monetary policy; quantitative easing; business cycles; money; credit; sectoral modelling;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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