Money and Credit Overhang in the Euro Area

Jingyang Liu, Clemens Kool

Research output: Working paper / PreprintDiscussion paper


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).
Original languageEnglish
PublisherT. Koopmans Institute
Number of pages38
Publication statusPublished - 2017

Publication series

SeriesU.S.E. Discussion Paper Series


  • macro-economic imbalances
  • net foreign credit
  • panel co-integration

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