IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Equilibrium Credit: The Reference Point for Macroprudential Supervisors

  • Buncic, Daniel

    ()

  • Martin Melecky

    ()

Equilibrium credit is an important concept as it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. The two stages allow us to study changes in the demand for credit due to varying levels of economic, financial and institutional development of a country. Using a panel of high- and middle-income countries over the period 1980-2010, we provide empirical evidence that the credit-to-GDP ratio is inappropriate to measure equilibrium credit. The reason for this is that such an approach ignores heterogeneity in the parameters that determine equilibrium credit across countries due to different stages of economic development. The main drivers of this heterogeneity are financial depth, access to financial services, use of capital markets, efficiency and funding of domestic banks, central bank independence, the degree of supervisory integration, and experience of a financial crisis. Also, countries in Europe and Central Asia show a slower adjustment of credit to its long-run equilibrium compared to other regions of the world.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1301.pdf
Download Restriction: no

Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1301.

as
in new window

Length: 53 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:usg:econwp:2013:01
Contact details of provider: Postal: Dufourstrasse 50, CH - 9000 St.Gallen
Phone: +41 71 224 23 25
Fax: +41 71 224 31 35
Web page: http://www.seps.unisg.ch/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Buncic, Daniel & Melecky, Martin, 2007. "An estimated New Keynesian policy model for Australia," MPRA Paper 4138, University Library of Munich, Germany.
  2. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Buncic, Daniel, 2009. "Understanding forecast failure of ESTAR models of real exchange rates," MPRA Paper 16526, University Library of Munich, Germany.
  4. A. Calza & C. Gartner & J. Sousa, 2003. "Modelling the demand for loans to the private sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 107-117.
  5. Loayza, Norman V. & Ranciere, Romain, 2006. "Financial Development, Financial Fragility, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
  6. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  7. Vasco Cúrdia & Michael Woodford, 2010. "Conventional and unconventional monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 229-264.
  8. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," NBER Working Papers 8249, National Bureau of Economic Research, Inc.
  9. Boris Hofmann, 2004. "The Determinants of Bank Credit in Industrialized Countries: Do Property Prices Matter?," International Finance, Wiley Blackwell, vol. 7(2), pages 203-234, 07.
  10. Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 12/163, International Monetary Fund.
  11. Markus Eller & Michael Frömmel & Nora Srzentic, 2010. "Private Sector Credit in CESEE: Long-Run Relationships and Short-Run Dynamics," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 50-78.
  12. Gergely Kiss & Gábor Vadas, 2005. "The Role of the Housing Market in Monetary Transmission," MNB Background Studies (discontinued) 2005/3, Magyar Nemzeti Bank (the central bank of Hungary).
  13. Brissimis, Sophocles N & Leventakis, John A, 1985. "Specification Tests of the Money Demand Function in an Open Economy," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 482-89, August.
  14. Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 26, Edinburgh School of Economics, University of Edinburgh.
  15. Virginie Coudert & Cyril Pouvelle, 2010. "Assessing the Sustainability of Credit Growth: The case of Central and Eastern European Countries," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(1), pages 87-120, June.
  16. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  17. Lawrence Christiano & Roberto Motto & Massimo Rostagno, 2007. "Two Reasons Why Money and Credit May be Useful in Monetary Policy," NBER Working Papers 13502, National Bureau of Economic Research, Inc.
  18. Theo S. Eicher & Chris Papageorgiou & Adrian E. Raftery, 2011. "Default priors and predictive performance in Bayesian model averaging, with application to growth determinants," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 30-55, January/F.
  19. Òscar Jordà & Moritz HP. Schularick & Alan M. Taylor, 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," NBER Working Papers 17621, National Bureau of Economic Research, Inc.
  20. Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
  21. Cottarelli, Carlo & Dell'Ariccia, Giovanni & Vladkova-Hollar, Ivanna, 2005. "Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 83-104, January.
  22. Gergely Kiss & G�bor Vadas, 2007. "The Role of the Housing Market in Monetary Transmission - Evidence from Hungary," European Journal of Housing Policy, Taylor and Francis Journals, vol. 7(3), pages 299-317.
  23. Egert, Balázs & Backé, Peter & Zumer, Tina, 2006. "Credit growth in Central and Eastern Europe: new (over)shooting stars?," Working Paper Series 0687, European Central Bank.
  24. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  25. Michal Brzoza-Brzezina, 2005. "Lending Booms in Europe’s Periphery: South-Western Lessons for Central-Eastern Members," Macroeconomics 0502002, EconWPA.
  26. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  27. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  28. Richard Werner, 2011. "Economics As If Banks Mattered: A Contribution Based On The Inductive Methodology," Manchester School, University of Manchester, vol. 79(s2), pages 25-35, 09.
  29. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643.
  30. Buncic, Daniel & Melecky, Martin, 2012. "Macroprudential stress testing of credit risk : a practical approach for policy makers," Policy Research Working Paper Series 5936, The World Bank.
  31. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  32. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  33. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  34. Arango, Sebastian & Ishaq Nadiri, M., 1981. "Demand for money in open economies," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 69-83.
  35. repec:onb:oenbwp:y:2010:i:2:b:1 is not listed on IDEAS
  36. Subramanian S. Sriram, 2001. "A Survey of Recent Empirical Money Demand Studies," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 3.
  37. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  38. Frédéric Boissay & Oscar Calvo-Gonzalez & Tomasz Kozluk, 2006. "Is Lending in Central and Eastern Europe Developing Too Fast?," Chapters, in: Financial Development, Integration and Stability, chapter 14 Edward Elgar.
  39. Humphrey, David & Kaloudis, Aris & Owre, Grete, 2004. "The future of cash: falling legal use and implications for government policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 221-233, July.
  40. Zou, Hui, 2006. "The Adaptive Lasso and Its Oracle Properties," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1418-1429, December.
  41. Bas B. Bakker & Giovanni Dell'Ariccia & Luc Laeven & Jérôme Vandenbussche & Deniz Igan & Hui Tong, 2012. "Policies for Macrofinancial Stability: How to Deal with Credit Booms," IMF Staff Discussion Notes 12/06, International Monetary Fund.
  42. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  43. Cho, Seonghoon & Moreno, Antonio, 2006. "A Small-Sample Study of the New-Keynesian Macro Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1461-1481, September.
  44. Melecky, Martin & Podpiera, Anca Maria, 2012. "Institutional structures of financial sector supervision, their drivers and emerging benchmark models," MPRA Paper 37059, University Library of Munich, Germany.
  45. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  46. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
  47. Mathias Drehmann & Claudio Borio & Leonardo Gambacorta & Gabriel Jiminez & Carlos Trucharte, 2010. "Countercyclical capital buffers: exploring options," BIS Working Papers 317, Bank for International Settlements.
  48. Calza, Alessandro & Manrique, Marta & Sousa, João, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 0202, European Central Bank.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:usg:econwp:2013:01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martina Flockerzi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.