Money, Finance and the Real Economy: what went wrong?

Transcription

1 Money, Finance and the Real Economy: what went wrong? Anton Brender Rotterdam, December 1, 15

2 December 15

3 FIRMS SPENDING BEHAVIOUR RESPONDS LESS TO INTEREST RATES CHANGES Non-financial firms borrowing flows and activity in the United States Borrowing flows (% of GDP) Real Fed funds rate* (%) [R.H.S.] * Fed funds rate deflated by average inflation over the past 1 years. December 15 Sources: Federal Reserve and Thomson Datastream 3

4 THAN TO DEMAND Investment in equipment and activity (year on year % change) United States France 3 GDP [R.H.S.] GDP [R.H.S.] 1-1 Equipment investment Equipment investment December 15 Source: Thomson Datastream

5 IT IS BY INFLUENCING HOUSEHOLD BORROWING THAT INTEREST RATE CHANGES INFLUENCE THE REAL ECONOMY 8 Monetary impulse and change in household borrowing (% of GDP) -year change in the real interest rate* (-Q) year change in the borrowing ratio (*) The real interest rate is here the difference between a nominal interest rate and the average growth in household income over the past 1 years. The nominal interest rate is itself a weighted average of the 1-year public bond yield (7%) and the Fed funds rate (3%), lagged by four quarters. The shaded zones in the right-hand figure correspond to American recessions (NBER definition). December 15 Sources: Bureau of Economic Analysis, Federal Reserve and Thomson Datastream 5

6 Goods and services trade balance (% of GDP, smoothed over 1 year) Faster growth Real GDP growth (% change over 1 year, centred on the period) HOUSEHOLDS APPETITE FOR BORROWING AND THE AVAILABLE FINANCING CHANNELS ARE HOWEVER VERY DIFFERENT ACROSS COUNTRIES Deterioration in the current account Spain, France, United States and United Kingdom Household borrowing flows (% of GDP, smoothed over 1 year) Increase in household borrowing Germany, China, Japan, Netherlands and Switzerland -5 5 Current-account balance (% of GDP, centred on the period) Improvement in the current account Note: The left-hand figure relates to the period The right-hand figure relates to the period - for the five non-oilexporting countries with the largest current-account surpluses (in dollars). December 15

7 Growth of emerging economies (% over years, annual rate) RELYING ON THE RESPONSE OF HOUSEHOLDS IN JUST A FEW COUNTRIES TO SUPPORT GROWTH IN THE WORLD ECONOMY COULD NOT LAST FOREVER! Current account and household borrowing in the United States Current accounts and growth in emerging regions Household borrowing (% of GDP) [Inverted R.H.S.] Current-account balance (% of GDP) Current account of emerging economies (% of GDP) December 15 Sources: National central banks and Thomson Datastream 7

8 Household financial wealth per head (in 1 dollars, log scale) THERE IS HOWEVER A HUGE POTENTIAL OF SAVINGS AVAILABLE IN PARTICULAR IN FAST GROWING ECONOMIES Household financial wealth and level of development 1,, 1, South Korea United States 1, China 1, 1,,, GDP per head (in 1 dollars) Note: In the figure on the left, there are 33 countries for the years 1 and 1, 31 for 3 and 13 for These years were chosen to avoid valuation effects related to excessively pronounced rises or falls in asset prices in this case, stock-market indices. The figure on the right shows all the points used in the regression. December 15 Sources: IMF, OECD and authors calculations 8

9 TO ABSORB THOSE SAVINGS, PRIVATE DEBT HAS BEEN INCREASING IN CHINA IN PARTICULAR! Debt of the non-financial private sector (% of GDP) 1 Brazil 1 Turkey 1 Russia China 1 India December 15 Source: Thomson Datastream 9

10 WHILE THE DEBT BURDEN HAS KEPT INCREASING IN EMERGING ECONOMIES, IN MANY DEVELOPED ECONOMIES PRIVATE DEBT TO GDP RATIOS BARELY FELL Back to normal economies United Kingdom Credit to the private sector (% of GDP) Lowflation economies Japan Commodity exporters Canada Non-financial private sector Australia United States Euro area Households 1 United Kingdom 1 8 United States Japan 8 Euro area Australia 1 8 Canada Non financial enterprises December United Kingdom United States Source: Thomson Datastream 1 Japan 1 8 Euro area Canada 1 8 Australia

11 MANY DEVELOPED ECONOMIES WILL CONTINUE TO FIGHT AN APPRECIATION OF THEIR CURRENCY Real effective exchange rates (11 = 1, PPI deflated) Back to normal economies 1 United Kingdom 11 1 United States Lowflation economies 1 11 Euro area Japan Commodity exporters 1 11 Australia 1 9 Canada Memo: 3 other European economies 1 Switzerland Sweden Denmark December 15 Source: Thomson Datastream

12 THE IMPRESSIVE INCREASE IN THE ECB BALANCE SHEET HAS HARDLY LED TO AN INCREASE IN THE AMOUNT OF LOANS OUTSTANDING Balance sheets of the euro Monetary Financial Institutions (1999 = 1) ECB Euro MFIs (consolidated) Consolidated balance sheet of the euro MFIs Assets Securities Loans (billions of euros) Liabilities Debt issued Currency and deposits 3 1 Euro MFIs (billions of euros, consolidated data) External assets 8 External liabilities December 15 Sources: Thomson Datastream, ECB

13 BUT IT HAS SIGNIFICANTLY CONTRIBUTED TO WEAKEN THE CURRENCY BY INDUCING MORE BUYING OF REST OF THE WORLD BONDS Banks Net suppliers of debt securities ( billion, moving average over Q, annual rate) Other financial institutions Banks Net buyers of debt securities ( billion, moving average over Q, annual rate) Other financial institutions (investment funds, financial vehicles ) Government ECB Insurance corp. & pension funds Rest of the world Non financial corp Rest of the world Non financial agents December Sources: Thomson Datastream, ECB

14 CONCLUSIONS Printing money by central banks will not solve the global growth problem. There is a need to build new financing channels to tap the existing saving potential. Governments have here a key role to play: if they don t want to borrow, they should at least help put in place those new channels December 15 1

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