Equilibrium Credit : The Reference Point for Macroprudential Supervisors

Equilibrium credit is an important concept because it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. It uses two stages to study changes in the demand for credit due to varying l...

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Main Authors:	Buncic, Daniel, Melecky, Martin
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ADVANCED ECONOMIES ARIMA ASSET PRICE ASSET PRICES ASSETS BANK BRANCHES BANK CREDIT BANKING SUPERVISION BENCHMARK BORROWING BORROWING COSTS BUFFER BUSINESS CYCLE CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS CONSUMER PRICE INFLATION CONSUMERS CORRELATION COEFFICIENT COST EFFECTIVENESS COST OF CREDIT COVARIANCE MATRIX CREDIT AVAILABILITY CREDIT GROWTH CREDIT NEEDS CREDIT PROVISION CREDIT REQUIREMENTS CURRENCY UNITS DEBT DEBT SECURITIES DEFLATION DEMAND FOR CREDIT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPOSIT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISEQUILIBRIUM DISTORTIONS DIVERSIFICATION DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CAPITAL MARKET DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC DEBT MARKETS DOMESTIC INTEREST RATE ECONOMETRIC MODEL ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMIC TRANSACTIONS ECONOMICS LITERATURE ELASTICITY EMERGING MARKET EMERGING MARKET ECONOMIES EQUILIBRIUM EQUILIBRIUM CREDIT EQUILIBRIUM LEVEL ERROR CORRECTION TERM EXCHANGE RATE EXCLUSION EXPLANATORY VARIABLES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ^ DEPTH FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL PORTFOLIOS FINANCIAL RISKS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FINANCING NEEDS FOREIGN CURRENCY FOREIGN INTEREST FOREIGN INTEREST RATE FULL EMPLOYMENT FUTURE RESEARCH GDP GDP DEFLATOR GDP PER CAPITA GREATER ACCESS INCOME INCOME ELASTICITY INDEPENDENT MONETARY POLICY INDICATOR VARIABLE INFLATION INFLATION RATE INSTITUTIONAL DEVELOPMENT INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL FINANCIAL STATISTICS INTERPOLATION INVESTMENT DIVERSIFICATION LACK OF CREDIT LEVELS OF ACCESS LEVELS OF CREDIT LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMICS MAJOR CURRENCIES MARKET ECONOMIES MIDDLE INCOME COUNTRIES MONETARY POLICY MONEY DEMAND MORAL HAZARD NOMINAL EXCHANGE RATE OPEN ECONOMIES OPEN ECONOMY PORTFOLIO PORTFOLIO DIVERSIFICATION POSITIVE COEFFICIENT PRICE CHANGES PRICE ELASTICITIES PRICE ELASTICITY PRICE STABILITY PRIVATE CREDIT PRIVATE DEBT PRIVATE SECTOR CREDIT PROVISION OF CREDIT PRUDENTIAL SUPERVISION QUANTITY THEORY OF MONEY RANDOM VARIABLE REAL ^ INTEREST REAL ^ INTEREST RATE REAL EXCHANGE RATES REAL GDP REAL INCOME REAL INTEREST REAL INTEREST RATE REGULATORY FRAMEWORK REJECTION RETURN RETURNS RISK TAKING RISK WEIGHTED ASSETS SAVINGS SAVINGS DEPOSITS SCATTER PLOT SERIAL CORRELATION SHARE OF CREDIT SPEED OF ADJUSTMENT SPEEDY ADJUSTMENTS STABLE ECONOMIC GROWTH STATISTICAL ESTIMATION SUPPLY OF CREDIT SUPPLY SIDE TRANSACTION VELOCITY OF MONEY WEALTH WEALTH EFFECT WEIGHTS WORLD INTEREST RATE
Online Access:	http://documents.worldbank.org/curated/en/2013/02/17280441/equilibrium-credit-reference-point-macroprudential-supervisors http://hdl.handle.net/10986/13151

id	okr-10986-13151
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ADVANCED ECONOMIES ARIMA ASSET PRICE ASSET PRICES ASSETS BANK BRANCHES BANK CREDIT BANKING SUPERVISION BENCHMARK BORROWING BORROWING COSTS BUFFER BUSINESS CYCLE CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS CONSUMER PRICE INFLATION CONSUMERS CORRELATION COEFFICIENT COST EFFECTIVENESS COST OF CREDIT COVARIANCE MATRIX CREDIT AVAILABILITY CREDIT GROWTH CREDIT NEEDS CREDIT PROVISION CREDIT REQUIREMENTS CURRENCY UNITS DEBT DEBT SECURITIES DEFLATION DEMAND FOR CREDIT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPOSIT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISEQUILIBRIUM DISTORTIONS DIVERSIFICATION DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CAPITAL MARKET DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC DEBT MARKETS DOMESTIC INTEREST RATE ECONOMETRIC MODEL ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMIC TRANSACTIONS ECONOMICS LITERATURE ELASTICITY EMERGING MARKET EMERGING MARKET ECONOMIES EQUILIBRIUM EQUILIBRIUM CREDIT EQUILIBRIUM LEVEL ERROR CORRECTION TERM EXCHANGE RATE EXCLUSION EXPLANATORY VARIABLES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ^ DEPTH FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL PORTFOLIOS FINANCIAL RISKS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FINANCING NEEDS FOREIGN CURRENCY FOREIGN INTEREST FOREIGN INTEREST RATE FULL EMPLOYMENT FUTURE RESEARCH GDP GDP DEFLATOR GDP PER CAPITA GREATER ACCESS INCOME INCOME ELASTICITY INDEPENDENT MONETARY POLICY INDICATOR VARIABLE INFLATION INFLATION RATE INSTITUTIONAL DEVELOPMENT INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL FINANCIAL STATISTICS INTERPOLATION INVESTMENT DIVERSIFICATION LACK OF CREDIT LEVELS OF ACCESS LEVELS OF CREDIT LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMICS MAJOR CURRENCIES MARKET ECONOMIES MIDDLE INCOME COUNTRIES MONETARY POLICY MONEY DEMAND MORAL HAZARD NOMINAL EXCHANGE RATE OPEN ECONOMIES OPEN ECONOMY PORTFOLIO PORTFOLIO DIVERSIFICATION POSITIVE COEFFICIENT PRICE CHANGES PRICE ELASTICITIES PRICE ELASTICITY PRICE STABILITY PRIVATE CREDIT PRIVATE DEBT PRIVATE SECTOR CREDIT PROVISION OF CREDIT PRUDENTIAL SUPERVISION QUANTITY THEORY OF MONEY RANDOM VARIABLE REAL ^ INTEREST REAL ^ INTEREST RATE REAL EXCHANGE RATES REAL GDP REAL INCOME REAL INTEREST REAL INTEREST RATE REGULATORY FRAMEWORK REJECTION RETURN RETURNS RISK TAKING RISK WEIGHTED ASSETS SAVINGS SAVINGS DEPOSITS SCATTER PLOT SERIAL CORRELATION SHARE OF CREDIT SPEED OF ADJUSTMENT SPEEDY ADJUSTMENTS STABLE ECONOMIC GROWTH STATISTICAL ESTIMATION SUPPLY OF CREDIT SUPPLY SIDE TRANSACTION VELOCITY OF MONEY WEALTH WEALTH EFFECT WEIGHTS WORLD INTEREST RATE
spellingShingle	ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ADVANCED ECONOMIES ARIMA ASSET PRICE ASSET PRICES ASSETS BANK BRANCHES BANK CREDIT BANKING SUPERVISION BENCHMARK BORROWING BORROWING COSTS BUFFER BUSINESS CYCLE CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS CONSUMER PRICE INFLATION CONSUMERS CORRELATION COEFFICIENT COST EFFECTIVENESS COST OF CREDIT COVARIANCE MATRIX CREDIT AVAILABILITY CREDIT GROWTH CREDIT NEEDS CREDIT PROVISION CREDIT REQUIREMENTS CURRENCY UNITS DEBT DEBT SECURITIES DEFLATION DEMAND FOR CREDIT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPOSIT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISEQUILIBRIUM DISTORTIONS DIVERSIFICATION DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CAPITAL MARKET DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC DEBT MARKETS DOMESTIC INTEREST RATE ECONOMETRIC MODEL ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMIC TRANSACTIONS ECONOMICS LITERATURE ELASTICITY EMERGING MARKET EMERGING MARKET ECONOMIES EQUILIBRIUM EQUILIBRIUM CREDIT EQUILIBRIUM LEVEL ERROR CORRECTION TERM EXCHANGE RATE EXCLUSION EXPLANATORY VARIABLES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ^ DEPTH FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL PORTFOLIOS FINANCIAL RISKS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FINANCING NEEDS FOREIGN CURRENCY FOREIGN INTEREST FOREIGN INTEREST RATE FULL EMPLOYMENT FUTURE RESEARCH GDP GDP DEFLATOR GDP PER CAPITA GREATER ACCESS INCOME INCOME ELASTICITY INDEPENDENT MONETARY POLICY INDICATOR VARIABLE INFLATION INFLATION RATE INSTITUTIONAL DEVELOPMENT INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL FINANCIAL STATISTICS INTERPOLATION INVESTMENT DIVERSIFICATION LACK OF CREDIT LEVELS OF ACCESS LEVELS OF CREDIT LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMICS MAJOR CURRENCIES MARKET ECONOMIES MIDDLE INCOME COUNTRIES MONETARY POLICY MONEY DEMAND MORAL HAZARD NOMINAL EXCHANGE RATE OPEN ECONOMIES OPEN ECONOMY PORTFOLIO PORTFOLIO DIVERSIFICATION POSITIVE COEFFICIENT PRICE CHANGES PRICE ELASTICITIES PRICE ELASTICITY PRICE STABILITY PRIVATE CREDIT PRIVATE DEBT PRIVATE SECTOR CREDIT PROVISION OF CREDIT PRUDENTIAL SUPERVISION QUANTITY THEORY OF MONEY RANDOM VARIABLE REAL ^ INTEREST REAL ^ INTEREST RATE REAL EXCHANGE RATES REAL GDP REAL INCOME REAL INTEREST REAL INTEREST RATE REGULATORY FRAMEWORK REJECTION RETURN RETURNS RISK TAKING RISK WEIGHTED ASSETS SAVINGS SAVINGS DEPOSITS SCATTER PLOT SERIAL CORRELATION SHARE OF CREDIT SPEED OF ADJUSTMENT SPEEDY ADJUSTMENTS STABLE ECONOMIC GROWTH STATISTICAL ESTIMATION SUPPLY OF CREDIT SUPPLY SIDE TRANSACTION VELOCITY OF MONEY WEALTH WEALTH EFFECT WEIGHTS WORLD INTEREST RATE Buncic, Daniel Melecky, Martin Equilibrium Credit : The Reference Point for Macroprudential Supervisors
geographic_facet	Europe and Central Asia Central Asia Europe and Central Asia Eastern Europe
relation	Policy Research Working Paper;No. 6358
description	Equilibrium credit is an important concept because it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. It uses two stages 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, this paper provides 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. Countries in Europe and Central Asia show a slower adjustment of credit to its long-run equilibrium compared with other regions of the world.
format	Publications & Research :: Policy Research Working Paper
author	Buncic, Daniel Melecky, Martin
author_facet	Buncic, Daniel Melecky, Martin
author_sort	Buncic, Daniel
title	Equilibrium Credit : The Reference Point for Macroprudential Supervisors
title_short	Equilibrium Credit : The Reference Point for Macroprudential Supervisors
title_full	Equilibrium Credit : The Reference Point for Macroprudential Supervisors
title_fullStr	Equilibrium Credit : The Reference Point for Macroprudential Supervisors
title_full_unstemmed	Equilibrium Credit : The Reference Point for Macroprudential Supervisors
title_sort	equilibrium credit : the reference point for macroprudential supervisors
publisher	World Bank, Washington, DC
publishDate	2013
url	http://documents.worldbank.org/curated/en/2013/02/17280441/equilibrium-credit-reference-point-macroprudential-supervisors http://hdl.handle.net/10986/13151
_version_	1764422807163240448
spelling	okr-10986-131512021-04-23T14:03:07Z Equilibrium Credit : The Reference Point for Macroprudential Supervisors Buncic, Daniel Melecky, Martin ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ADVANCED ECONOMIES ARIMA ASSET PRICE ASSET PRICES ASSETS BANK BRANCHES BANK CREDIT BANKING SUPERVISION BENCHMARK BORROWING BORROWING COSTS BUFFER BUSINESS CYCLE CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS CONSUMER PRICE INFLATION CONSUMERS CORRELATION COEFFICIENT COST EFFECTIVENESS COST OF CREDIT COVARIANCE MATRIX CREDIT AVAILABILITY CREDIT GROWTH CREDIT NEEDS CREDIT PROVISION CREDIT REQUIREMENTS CURRENCY UNITS DEBT DEBT SECURITIES DEFLATION DEMAND FOR CREDIT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPOSIT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISEQUILIBRIUM DISTORTIONS DIVERSIFICATION DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CAPITAL MARKET DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC DEBT MARKETS DOMESTIC INTEREST RATE ECONOMETRIC MODEL ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMIC TRANSACTIONS ECONOMICS LITERATURE ELASTICITY EMERGING MARKET EMERGING MARKET ECONOMIES EQUILIBRIUM EQUILIBRIUM CREDIT EQUILIBRIUM LEVEL ERROR CORRECTION TERM EXCHANGE RATE EXCLUSION EXPLANATORY VARIABLES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ^ DEPTH FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL PORTFOLIOS FINANCIAL RISKS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL TRANSACTIONS FINANCING NEEDS FOREIGN CURRENCY FOREIGN INTEREST FOREIGN INTEREST RATE FULL EMPLOYMENT FUTURE RESEARCH GDP GDP DEFLATOR GDP PER CAPITA GREATER ACCESS INCOME INCOME ELASTICITY INDEPENDENT MONETARY POLICY INDICATOR VARIABLE INFLATION INFLATION RATE INSTITUTIONAL DEVELOPMENT INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL FINANCIAL STATISTICS INTERPOLATION INVESTMENT DIVERSIFICATION LACK OF CREDIT LEVELS OF ACCESS LEVELS OF CREDIT LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMICS MAJOR CURRENCIES MARKET ECONOMIES MIDDLE INCOME COUNTRIES MONETARY POLICY MONEY DEMAND MORAL HAZARD NOMINAL EXCHANGE RATE OPEN ECONOMIES OPEN ECONOMY PORTFOLIO PORTFOLIO DIVERSIFICATION POSITIVE COEFFICIENT PRICE CHANGES PRICE ELASTICITIES PRICE ELASTICITY PRICE STABILITY PRIVATE CREDIT PRIVATE DEBT PRIVATE SECTOR CREDIT PROVISION OF CREDIT PRUDENTIAL SUPERVISION QUANTITY THEORY OF MONEY RANDOM VARIABLE REAL ^ INTEREST REAL ^ INTEREST RATE REAL EXCHANGE RATES REAL GDP REAL INCOME REAL INTEREST REAL INTEREST RATE REGULATORY FRAMEWORK REJECTION RETURN RETURNS RISK TAKING RISK WEIGHTED ASSETS SAVINGS SAVINGS DEPOSITS SCATTER PLOT SERIAL CORRELATION SHARE OF CREDIT SPEED OF ADJUSTMENT SPEEDY ADJUSTMENTS STABLE ECONOMIC GROWTH STATISTICAL ESTIMATION SUPPLY OF CREDIT SUPPLY SIDE TRANSACTION VELOCITY OF MONEY WEALTH WEALTH EFFECT WEIGHTS WORLD INTEREST RATE Equilibrium credit is an important concept because it helps identify excessive credit provision. This paper proposes a two-stage approach to determine equilibrium credit. It uses two stages 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, this paper provides 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. Countries in Europe and Central Asia show a slower adjustment of credit to its long-run equilibrium compared with other regions of the world. 2013-04-11T17:03:20Z 2013-04-11T17:03:20Z 2013-02 http://documents.worldbank.org/curated/en/2013/02/17280441/equilibrium-credit-reference-point-macroprudential-supervisors http://hdl.handle.net/10986/13151 English en_US Policy Research Working Paper;No. 6358 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia Central Asia Europe and Central Asia Eastern Europe

Equilibrium Credit : The Reference Point for Macroprudential Supervisors

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