A Sectoral Framework for Analyzing Money, Credit and Unconventional Monetary Policy

Cloyne, James; Thomas, Ryland; Tuckett, Alex; Wills, Samuel

doi:10.2139/ssrn.2674052

Cited by 5 publications

(7 citation statements)

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“…Balance sheet effects on consumption via the stock market and housing in the UK are clearly important; see US and international evidence surveyed in Cooper and Dynan (2016). The Bank's suite does now include a three-equation estimated model for consumption, unsecured debt, and household broad money; see Cloyne et al (2015). This imposes the restriction that broad money, stock market and pension wealth have the same marginal propensity to spend, and minus that on debt, though the short-term dynamics includes separate housing and financial wealth terms.…”

Section: (V) Problems With the Bank's 'Suite Of Models'mentioning

confidence: 99%

“…With more emphasis on the financial side and a short sample for 1998-2014, the real economy relationships such as consumption and investment functions take a fairly rudimentary form. This should nevertheless be a useful prelude to 17 Footnote 26 in Cloyne et al (2015) explains that the housing wealth effect is excluded from the long-run solution for consumption (as in BEQM). 18 Cloyne et al (2016) find evidence for a negative effect of changes in mortgage rates on spending using microdata, first explained in a theory model by Jackman and Sutton (1982).…”

Section: (V) Problems With the Bank's 'Suite Of Models'mentioning

confidence: 99%

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The future of macroeconomics: macro theory and models at the Bank of England

Hendry

Muellbauer

2018

Oxford Review of Economic Policy

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The adoption as policy models by central banks of representative agent New Keynesian dynamic stochastic general equilibrium models has been widely criticised, including for their simplistic micro-foundations. At the Bank of England, the previous generation of policy models is seen in its 1999 medium-term macro model (MTMM). Instead of improving that model to correct its considerable flaws, many shared by other non-DSGE policy models such as the Federal Reserve's FRB/US, it was replaced in 2004 by the DSGE-based BEQM. Though this clearly failed during and after the global financial crisis, it was replaced in 2011 by the DSGE COMPASS, complemented by a 'suite of models'. We provide a general critique of DSGE models for explaining, forecasting and policy analyses at central banks, and suggest new directions for improving current empirical macroeconomic models based on empirical modelling broadly consistent with better theory, rather than seeking to impose simplistic and unrealistic theory.

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Section: (V) Problems With the Bank's 'Suite Of Models'mentioning

confidence: 99%

Section: (V) Problems With the Bank's 'Suite Of Models'mentioning

confidence: 99%

The future of macroeconomics: macro theory and models at the Bank of England

Hendry

Muellbauer

2018

Oxford Review of Economic Policy

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“…in a closed economy setting, this implies fewer deposits are held by NiOFCs, perhaps as households and companies cash in investments or sell assets to this sector to try and shore up their liquidity in the face of declining credit provision by banks. in turn, as discussed in Cloyne et al (2015), this would reduce asset prices, accentuating the negative impact on GDp of the tightening in credit. however, we think this result may be partial and misleading.…”

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confidence: 94%

“…and they were a useful crosscheck on the results of other approaches. the channels of that mechanism were explored in more detail using sectoral models in Bridges and thomas (2012) and Cloyne, thomas, tuckett, and Wills (2015).…”

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confidence: 99%

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The Analysis of Money and Credit During the Financial Crisis: The Approach At the Bank of England

Bridges¹,

Cloyne²,

Thomas³

et al. 2016

Monetary Analysis at Central Banks

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this chapter discusses the empirical analysis of money and credit undertaken at the Bank of england during the financial crisis and how it is used. an aggregate structural vector autoregression sVar including money is employed to analyse the impact of quantitative easing (Qe), as a crosscheck on other approaches focussing on the impact on financial market prices. Sectoral models of money and credit are used to assess the impact of the crisis and the associated shock to credit conditions. the contraction in the supply of credit to each sector can explain a substantial proportion of the shortfall in GDp relative to its pre-crisis trend. the shocks can also explain a large part of the fall in credit and much of the contraction in the customer funding gap.

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Financial integration and the Great Leveraging

Carvalho

2018

Int. J Fin Econ

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This paper studies the joint dynamics of international capital flows and domestic credit and money growth. It finds a strong statistical relationship between cross‐border flows and the decoupling of these two variables—the Great Leveraging—a stylized fact documented for several economies in the past decades, due to faster credit than money growth, and associated with the expansion of banks nonmonetary liabilities. Results indicate that, in addition to the equity/debt breakdown, it is important to split capital flows according to the domestic recipient sectors: banking sector flows display, in general, a stronger correlation with the growth of credit and with its excess growth over money. Furthermore, the country's FX regime also plays a role, as money holdings tend to be less responsive to cross‐border capital flows in fixed FX regimes. In broad terms, this approach sheds light on the mechanisms through which the international banking activity might have consequences for the composition of the domestic aggregate bank balance sheet.

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A Sectoral Framework for Analyzing Money, Credit and Unconventional Monetary Policy

Cited by 5 publications

References 4 publications

The future of macroeconomics: macro theory and models at the Bank of England

The future of macroeconomics: macro theory and models at the Bank of England

The Analysis of Money and Credit During the Financial Crisis: The Approach At the Bank of England

Financial integration and the Great Leveraging

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