Credit and business cycles’ relationship : evidence from Spain

This study provides evidence on the interaction between business and credit cycles in Spain during the period 1970–2014. The paper works on three analyses: the cycle turning points are identified; the main features of credit and business cycles are documented; and in both cycles the causal relationship is assessed. We find differences in the features of the business and credit cycle phases, which lead to a scant degree of synchronization over time. The lack of synchronization might be a sign that the cyclic interaction could be non-contemporaneous. Our results reveal that there is causation. A significant lagged rela- tionship between business and credit cycles is found; specifically, fluctuations of the business cycle lead fluctuations of the credit to non-financial corporations and a lag exists with respect to the fluctuations of the credit to households. We also examine episodes of credit boom and credit crunch. In the period 1970–2014, Spanish credit booms did not involve deeper business cycle contractions and credit crunches were not associated with deeper and longer business cycle contractions. These differences are related with the great importance of the real estate sector in Spain.info:eu-repo/semantics/publishedVersio

Inflation differentials in the Euro area: did the ECB care?

Compared to inflation differentials among regions in the United States, European Monetary Union (EMU) inflation differentials are larger and more persistent. Based on augmented monetary policy reactions functions, this article addresses the question whether the presence of pronounced inflation differentials in combination with low average inflation rates has influenced monetary policy decisions of the ECB. The article finds statistical evidence that the ECB took inflation differentials into account which may reflect the fear of deflation in low inflation countries like Germany.

Using the Term Structure of Interest Rates for Monetary Policy

The term structure of interest rates, i.e., the yield curve, has long been of interest to monetary policymakers and their advisers. The transmission of monetary policy is conventionally viewed as running from shortterm interest rates managed by central banks to longer-term rates that influence aggregate demand. A central bank’s leverage over longer-term rates comes from the fact that the market determines these as the average expected level of short rates over the relevant horizon (abstracting from a term premium and default risk). Working in the other direction, the long bond rate contains a premium for expected inflation and, thus, serves as an indicator of the credibility of a central bank’s commitment to low inflation. 1 Different theoretical perspectives support the two above-mentioned uses of the term structure for monetary policy: John Hicks’s (1939) expectations theory of the term structure supports the first, and Irving Fisher’s (1896) decomposition of nominal bond rates into expected inflation and an expected real return supports the second. 2 The two views are compatible in principle, although reconciling them creates difficulties of interpretation in practice. For example, does a steepening yield curve indicate a loss of confidence in the central bank’s commitment to low inflation, or does it indicate that markets expect tighte

Global liquidity and commodity prices-a cointegrated VAR approach for OECD countries

This article examines the interactions between money, consumer prices and commodity prices at a global level from 1970 to 2008. Using aggregated data for major Organization for Economic Cooperation and Development (OECD) countries and a Cointegrating Vector Autoregression (CVAR) framework, we are able to establish long-run and short-run relationships among these variables while the process is mainly driven by global liquidity. According to our empirical findings, different price elasticities in commodity and consumer goods markets can explain the recently observed overshooting of commodity over consumer prices. Although the sample period is rather long, recursive tests corroborate that our CVAR fits the data very well.

Dream of the Red Financial Supermarket: The Gradual Emergence of Integrated Financial Services Provision in China in the 21st Century

While the current regulatory trend in the area of banking scope regulation favours integrated financial services provision, China continues to restrict commercial banks' permissible range of business activities via its 1995 Commercial Bank Law. In this article, we propose an analytical framework that explicitly incorporates the sophistication-level constraint of a country's financial system into the regulatory trade-off calculation between banks' need for new growth opportunities and an increased risk of financial instability. Applying this framework to China, we first discuss the episode of financial instability that led policy-makers to re-segment the financial industry in 1995 and then analyse the rationale behind China's recent, gradual movement back towards integrated financial services provision. While improved risk management capabilities mean that China may now be ready for a more liberal banking scope regulatory regime, we find that a financial crisis could still derail this important element of China's financial sector reform strateg