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Exploring the Steady-State Relationship between Credit and GDP for a Small Open Economy - The Case of Ireland

  • Kelly, Robert

    (Central Bank of Ireland)

  • McQuinn, Kieran

    (Central Bank of Ireland)

  • Stuart, Rebecca

    (Central Bank of Ireland)

The rapid increase in credit in an economy is now commonly perceived to be one of the leading in- dicators of financial instability. This view has been reinforced by the aftermath of the international financial crisis, which commenced in mid-2007. A key policy response has been to focus on the ratio of private sector credit to GDP for an economy, observing, in particular, significant deviations be- tween the actual and long-run trends of the ratio. This paper examines the issue of the steady-state relationship between private sector credit and GDP in the case of Ireland, a country which, even by international standards, experienced a sizeable expansion in credit over the past 10 years.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 1/RT/11.

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Date of creation: Mar 2011
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Handle: RePEc:cbi:wpaper:1/rt/11
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  8. William R. Keeton, 1999. "Does faster loan growth lead to higher loan losses?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 57-75.
  9. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises; The Early Warnings of Distress," IMF Working Papers 99/178, International Monetary Fund.
  10. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-27, November.
  11. Philip R Lane & Gian Maria Milesi-Ferretti, 2011. "The Cross-Country Incidence of the Global Crisis," IMF Economic Review, Palgrave Macmillan, vol. 59(1), pages 77-110, April.
  12. McQuinn, Kieran & O'Reilly, Gerard, 2006. "Assessing the Role of Income and Interest Rates in Determining House Prices," Research Technical Papers 15/RT/06, Central Bank of Ireland.
  13. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
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  19. McQuinn, Kieran & O' Reilly, Gerard, 2007. "A Model of Cross-Country House Prices (228.91 KB PDF)," Research Technical Papers 5/RT/07, Central Bank of Ireland.
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  23. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
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