Bank Credit, Business Cycles and Monetary Policy: 1984-2011
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| Title | Bank Credit, Business Cycles and Monetary Policy: 1984-2011
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| Author | Li Lianfa |
| Organization | Peking University School of Economics Department of Finance |
| Email | lfli@pku.edu.cn |
| Key Words | Credit; Bank; Monetary Policy; Inflation |
| Abstract | Given the fact that credit expansion has become an important driving force of modern business cycle, this paper builds an extended Svensson model, which incorporates endogenous credit expansion and business cycle features, to study the driving factors and macroeconomic implications of credit expansions induced by the extrapolation bias in estimating credit losses. It is found that, using China’s data since 1984, after the credit expansion, the inflation pressure lasts at least 7 quarters while the output gap stops to rise after about 4 quarters. It also concludes that the optimal change in credit aggregates could enhance macroeconomic stability if it is well led. The cointegration analysis shows that the reserve ratios are often high when credits are expanded. The central bank is suggested to keep leading the credit aggregates closely. |
| Serial Number | WP213 |
| Time | 2012-02-15 |
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