Exploring the Steady-State Relationship Between Credit and GDP for a Small Open Economy: The Case of Ireland

37 Pages Posted: 8 May 2013

See all articles by Robert J. Kelly

Robert J. Kelly

Central Bank of Ireland

Kieran McQuinn

Central Bank and Financial Services Authority of Ireland

Rebecca Stuart

Central Bank of Ireland

Date Written: March 27, 2013

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.

Keywords: Credit, GDP, Indicator

JEL Classification: G01, E51, E63

Suggested Citation

Kelly, Robert J. and McQuinn, Kieran and Stuart, Rebecca, Exploring the Steady-State Relationship Between Credit and GDP for a Small Open Economy: The Case of Ireland (March 27, 2013). ECB Working Paper No. 1531, Available at SSRN: https://ssrn.com/abstract=2240169 or http://dx.doi.org/10.2139/ssrn.2240169

Robert J. Kelly (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Kieran McQuinn

Central Bank and Financial Services Authority of Ireland ( email )

P.O. 559 Dame Street
Dublin 2, D2
Ireland

Rebecca Stuart

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

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