Leaning Against the Credit Cycle

Gelain, Paolo; Lansing, Kevin J.; Natvik, Gisle James

doi:10.2139/ssrn.2602471

Cited by 29 publications

(32 citation statements)

References 38 publications

(12 reference statements)

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“…These additional exercises, shown in Figure 6, reveal that the monetary policy shock causes only a moderate reduction in nominal debt on impact. Similar to the results in Svensson (2013) and Gelain et al (2015), the stock of nominal debt exhibits considerable inertia, as agents …nd it di¢ cult to change existing contracts. Given that the fall in in ‡ation is larger than the reduction in nominal debt, after a monetary policy shock real debt rises slightly on impact.…”

Section: Impulse Responsessupporting

confidence: 73%

Monetary Policy, Private Debt and Financial Stability Risks

Bauer

Granziera²

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ii Terms of use: Documents in AbstractCan monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the debt-to-GDP ratio rises in the short run following an unexpected tightening in monetary policy. As a consequence, the likelihood of a financial crisis increases, as estimated from a panel logit regression. However, in the long run, output recovers and higher borrowing costs discourage new lending, leading to a deleveraging of the private sector. A lower debt-to-GDP ratio in turn reduces the likelihood of a financial crisis. These results suggest that monetary policy can achieve a less risky financial system in the long run but could fuel financial instability in the short run. We also find that the ultimate effects of a monetary policy tightening on the probability of a financial crisis depend on the leverage of the private sector: the higher the initial value of the debt-to-GDP ratio, the more beneficial the monetary policy intervention in the long run, but the more destabilizing in the short run. Bank topics: Monetary policy; Financial stability; Credit and credit aggregates; Transmission of monetary policy JEL codes: E; E52; E58; C21; C23 RésuméLa politique monétaire peut-elle aider à soutenir la stabilité financière? Pour répondre à cette question, nous estimons l'incidence qu'un choc de politique monétaire aurait sur le levier financier du secteur privé et sur la probabilité de voir survenir une crise financière. Les fonctions de réaction tirées du modèle vectoriel autorégressif sur données de panel utilisé pour 18 pays avancés tendent à montrer que le ratio de la dette au PIB augmente à court terme après un resserrement inattendu de la politique monétaire. L'éclatement d'une crise financière devient alors plus probable, comme l'indiquent les estimations du modèle de régression logit. Sur le long terme en revanche, la production se redresse, et la hausse du coût du crédit décourage de nouveaux emprunts, ce qui aboutit à une diminution du levier financier dans le secteur privé. La baisse du ratio de la dette au PIB rend l'éclatement d'une crise financière moins probable. Ces résultats semblent montrer que la politique monétaire permet de réduire les risques pour la stabilité du système financier sur le long terme, mais qu'...

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Section: Impulse Responsessupporting

confidence: 73%

Monetary Policy, Private Debt and Financial Stability Risks

Bauer

Granziera²

2016

SSRN Journal

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“…A similar pattern is found in Gelain et al (2017), where simulations based on a small scale DSGE model point to an increase in the household debt-to-GDP ratio in the short run. Empirically, this paper also confirms the results in Robstad (2014).…”

Section: Monetary Policy and Credit To Householdssupporting

confidence: 78%

“…5 Empirical estimates of the effects of monetary policy are usually obtained using structural VAR-models (SVAR-models), see among (many) others Christiano, Eichenbaum, and Evans (1999), Uhlig (2005) and Jarociński and Smets (2008). 6 The effect of a monetary policy shock on credit is usually estimated to be relatively modest, see e.g Robstad (2014), and for estimates with a DSGE-model, see Gelain, Lansing, and Natvik (2017). Credit to households as a share of GDP and credit to non-financial enterprises have been found to respond somewhat differently to monetary policy shocks in the existing literature; den Haan, Sumner, and Yamashiro (2007) find that credit to non-financial enterprises increases when interest rates are raised in the US.…”

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confidence: 99%

Financial Imbalances, Crisis Probability and Monetary Policy in Norway

Alstadheim¹,

Robstad²,

Vonen³

2017

SSRN Journal

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“…Following Alpanda and Zubairy (2017) and Gelain, Lansing, and Natvik (2018), we choose = 0:019 to achieve a realistic amortization rate for a typical 30-year conventional mortgage. The computation is based on an approximate law of motion for the amortization rate developed by Kydland, Rupert, and Šustek (2016).…”

Section: Parameter Valuesmentioning

confidence: 99%

Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach

Gelain¹,

Lansing²,

Natvik³

2017

ERWP

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We use a quantitative asset pricing model to "reverse-engineer"the sequences of shocks to housing demand and lending standards needed to replicate the boom-bust patterns in U.S. housing value and mortgage debt from 1993 to 2015. Conditional on the observed paths for U.S. real consumption growth, the real mortgage interest rate, and the supply of residential …xed assets, a speci…cation with random walk expectations outperforms one with rational expectations in plausibly matching the patterns in the data. Counterfactual simulations show that shocks to housing demand, housing supply, and lending standards were important, but movements in the mortgage interest rate were not.

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Leaning Against the Credit Cycle

Cited by 29 publications

References 38 publications

Monetary Policy, Private Debt and Financial Stability Risks

Monetary Policy, Private Debt and Financial Stability Risks

Financial Imbalances, Crisis Probability and Monetary Policy in Norway

Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach

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