A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate
The financial crisis of 2007-2008 triggered monetary policy designed to boost nominal demand, including 'Quantitative Easing', 'Credit Easing', 'Forward Guidance' and 'Funding for Lending'. A key aim of these policies was to boost the quantity of bank credit t...
| Main Authors: | , , |
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| Format: | Journal article |
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Elsevier
2016
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| _version_ | 1797067600508747776 |
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| author | Ryan-Collins, J Werner, R Castle, J |
| author_facet | Ryan-Collins, J Werner, R Castle, J |
| author_sort | Ryan-Collins, J |
| collection | OXFORD |
| description | The financial crisis of 2007-2008 triggered monetary policy designed to boost nominal demand, including 'Quantitative Easing', 'Credit Easing', 'Forward Guidance' and 'Funding for Lending'. A key aim of these policies was to boost the quantity of bank credit to the nonfinancial corporate and household sectors. In the previous decade or more, however, policy-makers had not focused on bank credit. Indeed, over the past half century, different variables were raised to prominence in the quest to achieve desired nominal GDP outcomes. This paper conducts a long-overdue horse race between the various contenders in terms of their ability to account for observed nominal GDP growth, using a half-century of UK data since 1963. Employing the 'General-to-Specific' methodology, an equilibrium-correction model is estimated suggesting a long-run cointegrating relationship between disaggregated real economy credit and nominal GDP. Short-term and long-term interest rates and broad money do not appear to influence nominal GDP significantly. Vector Autoregression and Vector Error Correction modelling shows the real economy credit growth variable to be strongly exogenous to nominal GDP growth. Policymakers are hence right to finally emphasise the role of bank credit, although they need to disaggregate it and specifically target bank credit for GDP-transactions. |
| first_indexed | 2024-03-06T21:58:39Z |
| format | Journal article |
| id | oxford-uuid:4dd14996-8d83-4255-905f-40b983ec77a8 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T21:58:39Z |
| publishDate | 2016 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:4dd14996-8d83-4255-905f-40b983ec77a82022-03-26T15:57:39ZA half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rateJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:4dd14996-8d83-4255-905f-40b983ec77a8Symplectic Elements at OxfordElsevier2016Ryan-Collins, JWerner, RCastle, JThe financial crisis of 2007-2008 triggered monetary policy designed to boost nominal demand, including 'Quantitative Easing', 'Credit Easing', 'Forward Guidance' and 'Funding for Lending'. A key aim of these policies was to boost the quantity of bank credit to the nonfinancial corporate and household sectors. In the previous decade or more, however, policy-makers had not focused on bank credit. Indeed, over the past half century, different variables were raised to prominence in the quest to achieve desired nominal GDP outcomes. This paper conducts a long-overdue horse race between the various contenders in terms of their ability to account for observed nominal GDP growth, using a half-century of UK data since 1963. Employing the 'General-to-Specific' methodology, an equilibrium-correction model is estimated suggesting a long-run cointegrating relationship between disaggregated real economy credit and nominal GDP. Short-term and long-term interest rates and broad money do not appear to influence nominal GDP significantly. Vector Autoregression and Vector Error Correction modelling shows the real economy credit growth variable to be strongly exogenous to nominal GDP growth. Policymakers are hence right to finally emphasise the role of bank credit, although they need to disaggregate it and specifically target bank credit for GDP-transactions. |
| spellingShingle | Ryan-Collins, J Werner, R Castle, J A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title | A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title_full | A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title_fullStr | A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title_full_unstemmed | A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title_short | A half-century diversion of monetary policy? An empirical horserace to identify the UK variable most likely to deliver the desired nominal GDP growth rate |
| title_sort | half century diversion of monetary policy an empirical horserace to identify the uk variable most likely to deliver the desired nominal gdp growth rate |
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