Equilibrium Credit: The Reference Point for Macroprudential Supervisors

Daniel Buncic and Martin Melecký

No 1301, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: Equilibrium credit is an important concept as it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. The two stages allow us to study changes in the demand for credit due to varying levels of economic, financial and institutional development of a country. Using a panel of high- and middle-income countries over the period 1980-2010, we provide empirical evidence that the credit-to-GDP ratio is inappropriate to measure equilibrium credit. The reason for this is that such an approach ignores heterogeneity in the parameters that determine equilibrium credit across countries due to different stages of economic development. The main drivers of this heterogeneity are financial depth, access to financial services, use of capital markets, efficiency and funding of domestic banks, central bank independence, the degree of supervisory integration, and experience of a financial crisis. Also, countries in Europe and Central Asia show a slower adjustment of credit to its long-run equilibrium compared to other regions of the world.

Keywords: Equilibrium Credit; Macroprudential Supervision; Demand for Credit; Time-Series Panel Data; High- and Middle Income Countries (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2013-01, Revised 2014-02
New Economics Papers: this item is included in nep-ban and nep-cba
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Equilibrium credit: The reference point for macroprudential supervisors (2014)
Working Paper: Equilibrium Credit: The Reference Point for Macroprudential Supervisors (2013)
Working Paper: Equilibrium credit: the reference point for macroprudential supervisors (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2013:01

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