Money and credit during normal times and house price booms: evidence from time-frequency analysis

Abstract

I analyse the link between money and credit for twelve industrialized countries in the time period from 1970 to 2016. The euro area and Commonwealth Countries have rather strong co-movements between money and credit at longer frequencies. Denmark and Switzerland show weak and episodic effects. Scandinavian countries and the US are somewhere in between. I find strong and significant longer run comovements especially around booming house prices for all of the sample countries. The analysis suggests the expansionary policy that cleans up after the burst of a bubble may exacerbate the risk of a new house price boom. The interrelation is hidden in the short run, because the co-movements are then rarely statistically significant. According to the wavelet evidence, developments of money and credit since the Great Recession or their decoupling in Japan suggest that it is more appropriate to examine the two variables separately in some circumstances.

Macroeconomic performance of countries across monetary policy regimes from 2000 to 2017

“…The reason is the literature's inconclusiveness on optimal monetary policy. The 2007 financial crisis re-evoked a discussion on central bank policy objectives and the role of money in economic stabilisation (Ryczkowski, 2019). After the crisis, Stiglitz (2008) appealed that I.T.…”

The Interconnectedness of Stock Prices, Money, and Credit Across Time and Frequency From 1970 to 2016

“…Generally, we can observe a considerable increase in credit relative to money in the second half of the twentieth century (Schularick & Taylor, 2012). Moreover, the relationship between money and credit differs between: a) Commonwealth Countries, b) Denmark and Switzerland, c) Scandinavian countries and the United States (Ryczkowski, 2020b). Although in recent years a few empirical papers of Carvalho (2019), Ryczkowski (2020b), Liu and Kool (2018) faced the issue of money-credit nexus, the growing wedge between money and credit in some countries and its consequences for the monetary policy are still largely unrecognized.…”

“…Moreover, the relationship between money and credit differs between: a) Commonwealth Countries, b) Denmark and Switzerland, c) Scandinavian countries and the United States (Ryczkowski, 2020b). Although in recent years a few empirical papers of Carvalho (2019), Ryczkowski (2020b), Liu and Kool (2018) faced the issue of money-credit nexus, the growing wedge between money and credit in some countries and its consequences for the monetary policy are still largely unrecognized. Meanwhile the existence, causation and stability of a relation between money and credit has deep consequences for policy (Goodhart et al, 2016).…”

Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis

“…The unprecedented scale of these purchases has encouraged practitioners and academia to study their macroeconomic impact (Hohberger, Priftis, & Vogel, 2019;Matousek, Papadamou, Šević, & Tzeremes, 2019). The financial system, filled with abundant liquidity and characterized by fundamental changes of money and credit (Ryczkowski, 2020;Schularick & Taylor, 2012), caused others to deliberate on the possible unintended medium-and longer-run consequences of such an "ultra-easy" monetary policy (Ciżkowicz & Rzońca, 2017). In particular, the accommodative monetary policy created concerns about its inflationary risks (Giraud & Pottier, 2016;van den End, 2016).…”