The global credit boom: Challenges for macroeconomics and policy

Hume, M.; Sentance, Andrew

doi:10.1016/j.jimonfin.2009.08.009

Cited by 117 publications

(80 citation statements)

References 45 publications

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“…Another issue might be the financial fragility effect induced by collateral constraints, where declining asset values impair lending, lowering productivity, thus causing further declines in asset values (Bernanke, Gertler, and Gilchrist 1999 or BGG). Still, one strand of criticism notes that in most of the financial-accelerator models credit remains by and large passive-as a propagator of shocks, not an independent source of shocks (Borio 2008;Hume and Sentance 2009). This was always well understood: for example, Bernanke and Gertler (1995, p. 28) stated that " [t]he credit channel is an enhancement mechanism, not a truly independent or parallel channel."…”

Section: Three Views Of Money and Creditmentioning

confidence: 99%

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008

Schularick

Taylor

2012

American Economic Review

1,856

424

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Section: Three Views Of Money and Creditmentioning

confidence: 99%

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008

Schularick

Taylor

2012

American Economic Review

1,856

424

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“…Empirical evidence based on the vector auto-regression technique suggests that interest rate shocks have a significant effect on house prices (Gupta et al 2010, Sá et al 2014. Moreover, Dokko et al (2011) and Hume and Sentance (2009) argue that the expansionary monetary policy, with its low levels of interest rates, has significantly contributed to the most recent house price boom. In contrast, there are also studies suggesting that housing market should have a larger effect on the growth of the economy, thus playing an important role in the monetary policy setting (Lacoviello 2004, Attanasio et al 2011, Laibson and Mollerstrom 2010.…”

Section: Introductionmentioning

confidence: 99%

Symmetric thermal optimal path and time-dependent lead-lag relationship: novel statistical tests and application to UK and US real-estate and monetary policies

Meng

Zhou

et al. 2016

Quantitative Finance

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We present the symmetric thermal optimal path (TOPS) method to determine the time-dependent lead-lag relationship between two stochastic time series. This novel version of the previously introduced TOP method alleviates some inconsistencies by imposing that the lead-lag relationship should be invariant with respect to a time reversal of the time series after a change of sign. This means that, if 'X comes before Y ', this transforms into 'Y comes before X' under a time reversal. We show that previously proposed bootstrap test lacks power and leads too often to a lack of rejection of the null that there is no lead-lag correlation when it is present. We introduce instead two novel tests. The first criterion, based on the free energy p-value ρ, quantifies the probability that a given lead-lag structure could be obtained from random time series with similar characteristics except for the lead-lag information. The second selfconsistent test embodies the idea that, for the lead-lag path to be significant, synchronizing the two time series using the time varying lead-lag path should lead to a statistically significant correlation. We perform intensive synthetic tests to demonstrate their performance and limitations. Finally, we apply the TOPS method with the two new tests to the time dependent lead-lag structures of house price and monetary policy of the United Kingdom (UK) and United States (US) from 1991 to 2011. We find that, for both countries, the TOPS paths indicate that interest rate changes were lagging behind house price index changes until the crisis in 2006-2007. The TOPS paths also suggest a catch up of the UK central bank and of the Federal Reserve still not being on top of the game during the crisis itself, as diagnosed by again the significant negative values of TOPS paths until 2008. Only later did the central banks interest rates as well as longer maturity rates lead the house price indices, confirming the occurrence of the transition to an era where the central bank is "causally" influencing the housing markets more than the reverse. The TOPS approach stresses the importance of accounting for change of regimes, so that similar pieces of information or policies may have drastically different impacts and developments, conditional on the economic, financial and geopolitical conditions. This study reinforces the view that the hypothesis of statistical stationarity in economics is highly questionable.

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“…Borio and Lowe (2002), Demirgüç-Kunt and Detragiache (1998), Demirgüç-Kunt and Detragiache (2005), Hume and Sentance (2009), Jordà, Schularick and Taylor (2011b), Jordà, Schularick and Taylor (2013), Kaminsky and Reinhart (1999), King (1994), Loayza and Ranciere (2005), Mendoza and Terrones (2008), Mendoza and Terrones (2012), Mian and Su… (2009), Reinhart and Reinhart (2008), Jordà, Schularick and Taylor (2011a), McKinnon and Pill (1996), Arteta and Eichengreen (2002).…”

Section: Introductionmentioning

confidence: 99%

Credit booms, banking crises, and the current account

Davis

Mack

Phoa

et al. 2016

Journal of International Money and Finance

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A number of papers have shown that rapid growth in private sector credit is a strong predictor of a banking crisis. This paper will ask if credit growth is itself the cause of a crisis, or is it the combination of credit growth and external deficits? This paper estimates a probabilistic model to find the marginal effect of private sector credit growth on the probability of a banking crisis. The model contains an interaction term between credit growth and the level of the current account, so the marginal effect of private sector credit growth may itself be a function of the level of the current account. We find that the marginal effect of rising private sector debt levels depends on an economy's external position. When the current account is in balance, the marginal effect of an increase in debt is rather small. However, when the economy is running a sizable current account deficit, implying that any increase in the debt ratio is financed through foreign borrowing, this marginal effect is large.

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The global credit boom: Challenges for macroeconomics and policy

Cited by 117 publications

References 45 publications

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008

Symmetric thermal optimal path and time-dependent lead-lag relationship: novel statistical tests and application to UK and US real-estate and monetary policies

Credit booms, banking crises, and the current account

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