A Flow of Funds Perspective on the Financial Crisis Volume I Money, Credit and Sectoral Balance Sheets

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  • Format: Hardcover
  • Copyright: 2013-11-29
  • Publisher: Palgrave Macmillan

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Flow-of-funds accounts are a component of the national accounts system reporting the financial transactions and balance sheets of the economy, classified by sectors and financial instruments. The biggest financial crisis in a lifetime has shown how important it is to have a deep knowledge of the financial balance sheets of the main sectors of the economy and the financial flows that take place between them. This type of information is essential for a proper understanding of the transmission of monetary and financial shocks through the economy, thereby complementing traditional monetary analysis centred on bank balance sheets.

This publication takes a flow-of-funds perspective of the financial crisis. The book highlights the ongoing efforts in the central bank and academic community to gain a deeper understanding of the implications of the financial crisis for monetary analysis and to develop empirical tools to extract regularities from the rich flow-of-funds dataset. The authors cover in this respect the full range of financial assets held by different sectors of the economy, including the balance sheet of financial intermediaries, bank leverage issues and their implications for the supply of credit to the economy, as well as the portfolio choices, savings behaviour and debt financing of households and non-financial corporations. Over time, this should enable monetary policy-makers to apply the new insights and instruments for a richer analysis of credit cycles and the transmission of monetary policy via flow-of-funds variables.

Author Biography

Bernhard Winkler worked at the Deutsche Bundesbank before joining the European Central Bank (ECB) in July 1998 as Economist in the Directorate-General Research. Subsequently he held positions as Senior Economist in the Monetary Policy Strategy Division and in the Counsel to the Executive Board as Adviser to Prof. Otmar Issing. Since May 2005 he has been Senior Adviser in the Directorate Monetary Policy responsible, inter alia, for flow-of-funds analysis at the ECB and the co-ordination of financial projections as part of the quarterly macroeconomic projections exercises. He has published on issues relating to monetary and fiscal policy in a monetary union, on monetary policy communication and on the Stability and Growth Pact as well as on cross-checking and the flow of funds.

Ad van Riet joined De Nederlandsche Bank as Economist in 1987 and took up a (Senior) Economist position at the European Monetary Institute in 1994. He joined the European Central Bank as Principal Economist when it was established in 1998 and was then in charge of the Monetary Policy Stance Unit. He became Head of the EU Countries Division in 2000 and Head of the Fiscal Policies Division in 2007. Since September 2011 he has been Senior Adviser in the Directorate General Economics and Secretary of the ECB Occasional Paper Series. He has published on European money demand, fiscal policy and structural reforms.

Peter Bull joined the Bank of England in 1964. After some years in the economics, international and foreign exchange areas, he moved to statistics, latterly as Head of the Statistics Department in 1987-94. In 1994 he joined the European Monetary Institute in Frankfurt as Head of Statistics, and remained as Director General Statistics when the European Central Bank was established in 1998. After retirement in autumn 2002 he has continued to work on related matters in the ECB and elsewhere. His more recent publications are in the field of national accounts and statistics.

Table of Contents

Foreword; Peter Praet
1. Money, Credit and the Flow of Funds in Monetary Policy; Bernhard Winkler, Ad van Riet and Peter Bull
2. The Quantity Theory of Money and the Flow of Funds; Carmelo Salleo
3. The Quantity Theory of Credit and Some of its Policy Implications; Richard Werner
4. Euro Area Money Demand and International Portfolio Allocation; Roberto A. De Santis, Carlo A. Favero and Barbara Roffia
5. Global Liquidity and Credit Booms; Claudio Borio, Robert McCauley and Patrick McGuire
6. Dual Liquidity Crises; Ulrich Bindseil and Adalbert Winkler
7. Determinants and Consequences of Credit Tightening; Riccardo De Bonis, Luigi Infante and Francesco Paternò
8. Financial Intermediary Balance Sheet Management; Tobias Adrian and Hyun Song Shin
9. Bank Leverage and the Credit Cycle in the Euro Area; Celestino Gíron and Silvia Mongelluzzo
10. Households' Financial Portfolio Choices; S. Avouyi Dovi, Vladimir Borgy, Christian Pfister, Michael Scharnagl and Frank Sédillot
11. Household Balance Sheets and Debt; Jacob Isaksen, Paul Lassenius Kramp, Louise Funch Sørensen and Søren Vester Sørensen
12. Analysing Recent Developments in the Financing of Euro Area Non-Financial Corporations; Laurent Maurin
13. Monetary Policy and the Flow of Funds in the Euro Area; Riccardo Bonci

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