The global credit boom: challenges for macroeconomics and policy

Michael Hume and Andrew Sentance ()
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Andrew Sentance: Monetary Policy Committee Unit, Bank of England, Postal: Bank of England, Threadneedle Street, London EC2R 8AH

No 27, Discussion Papers from Monetary Policy Committee Unit, Bank of England

Abstract: The recent financial crisis has put the spotlight on the rapid rise in credit which preceded it. In this paper, we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed. We find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place. We show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that, while the 'global savings glut' may account for the cycle's initial phase, other factors - such as the conduct of monetary policy and perceptions of declining macroeconomic risk - were more important from the mid-2000s onwards. We conclude by identifying some of the challenges now facing macroeconomics and policy.

Keywords: credit; business cycle; financial crisis; monetary policy; asset prices; boom and bust (search for similar items in EconPapers)
JEL-codes: E30 E50 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2009-06-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (122)

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Journal Article: The global credit boom: Challenges for macroeconomics and policy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mpc:wpaper:0027

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