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Exploring the steady-state relationship between credit and GDP for a small open economy: the case of Ireland

Author

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  • Kelly, Robert
  • McQuinn, Kieran
  • Stuart, Rebecca
Abstract
The rapid increase in credit in an economy is now commonly perceived to be one of the leading indicators of financial instability. This view has been reinforced by the aftermath of the international financial crisis, which commenced mid 2007. A key policy response has been to focus on the ratio of private sector credit to GDP for an economy, observing, in particular, significant deviations between the actual and long-run trends of the ratio. This paper examines the issue of the steady-state relationship between private sector credit and GDP in the case of Ireland, a country which, even by international standards, experienced a sizeable expansion in credit over the past 10 years. JEL Classification: G01, E51, E63

Suggested Citation

  • Kelly, Robert & McQuinn, Kieran & Stuart, Rebecca, 2013. "Exploring the steady-state relationship between credit and GDP for a small open economy: the case of Ireland," Working Paper Series 1531, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20131531
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. McGinnity, Frances & Russell, Helen & Alamir, Anousheh, 2024. "17 years after the start of the global financial crisis (GFC), where are we now with credit and house prices in the Irish residential market?," Papers WP779, Economic and Social Research Institute (ESRI).
    2. Oxana Babecka Kucharcukova & Renata Pasalicova, 2017. "Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data," Working Papers 2017/16, Czech National Bank.
    3. Robert Kelly & Kieran McQuinn, 2014. "On the Hook for Impaired Bank Lending: Do Sovereign-Bank Interlinkages Affect the Net Cost of a Fiscal Stimulus?," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 95-128, September.
    4. Lawless, Martina & Mc Inerney, Niall & McQuinn, Kieran & O'Toole, Conor, 2014. "Credit Requirements for Irish Firms in the Economic Recovery," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    5. José Alves & Rita Pereira, 2017. "The Portuguese Households' Indebtedness," Working Papers Department of Economics 2017/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    6. Giray Gozgor, 2015. "Causal relation between economic growth and domestic credit in the economic globalization: Evidence from the Hatemi-J's test," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(3), pages 395-408, April.
    7. Christian Castro & Ángel Estrada & Jorge Martínez, 2016. "The countercyclical capital buffer in spain: an analysis of key guiding indicators," Working Papers 1601, Banco de España.
    8. Bermingham, Colin & Conefrey, Thomas, 2014. "The Irish macroeconomic response to an external shock with an application to stress testing," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 454-470.
    9. Mary M. Everett, 2015. "Blowing the Bubble: The Global Funding of the Irish Credit Boom," The Economic and Social Review, Economic and Social Studies, vol. 46(3), pages 339-365.
    10. Clancy, Daragh & Merola, Rossana, 2017. "Countercyclical capital rules for small open economies," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 332-351.
    11. Creedon, Conn & O'Brien, Eoin, 2016. "Indicators for Setting the Countercyclical Capital Buffer," Economic Letters 02/EL/16, Central Bank of Ireland.
    12. Aisling Menton & Martina Sherman, 2015. "Analysis of the Irish SME market using micro-data," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Indicators to support monetary and financial stability analysis: data sources and statistical methodologies, volume 39, Bank for International Settlements.
    13. Dušan Stojanović & Danilo Stojanović, 2015. "Excessive Credit Growth Or Catching Up Process: The Case Of Central, Eastern And Southeastern European Countries," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(206), pages 7-44, July - Se.
    14. Itumeleng Pleasure Mongale & Tumelo Mashamaite & Nyiko Khoza, 2018. "Household savings, financing and economic growth in South Africa," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 105-116, January.
    15. Zsuzsanna Hosszú & Gyöngyi Körmendi & Bence Mérõ, 2015. "Univariate and multivariate filters to measure the credit gap," MNB Occasional Papers 2015/118, Magyar Nemzeti Bank (Central Bank of Hungary).
    16. Torsten Wezel, 2019. "Conceptual Issues in Calibrating the Basel III Countercyclical Capital Buffer," IMF Working Papers 2019/086, International Monetary Fund.
    17. Widiantoro, Dimas Mukhlas, 2022. "Countercyclical capital buffer: building the resilience or taming the rapid financial cycle?," MPRA Paper 113507, University Library of Munich, Germany.
    18. José Ricardo Borges Alves & Rita Maria Henriques Pereira, 2020. "The indebtedness of households up until the economic adjustment programme for Portugal: an empirical assessment," Public Sector Economics, Institute of Public Finance, vol. 44(4), pages 529-550.

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    More about this item

    Keywords

    credit; GDP; indicator;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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