Money and Credit Overhang in the Euro Area

Jingyang Liu, Clemens Kool

Research output: Contribution to journalArticleAcademicpeer-review

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).

Original languageEnglish
Pages (from-to)622-633
Number of pages12
JournalEconomic Modelling
Volume68
DOIs
Publication statusPublished - Jan 2018

JEL classifications

  • e50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
  • f34 - International Lending and Debt Problems

Keywords

  • macro-economic imbalances
  • net foreign credit
  • panel co-integration
  • REGRESSION
  • COINTEGRATED PANELS
  • HETEROGENEOUS PANELS
  • STABILITY
  • Panel co-integration
  • Net foreign credit
  • Macro-economic imbalances
  • FINITE-SAMPLE PROPERTIES
  • DEMAND
  • PANEL-DATA
  • INFLATION
  • CYCLES
  • UNIT-ROOT TESTS

Cite this