Paul Tucker: Money and credit - banking and the macroeconomy
Speech by Mr Paul Tucker, Executive Director and Member of the Monetary Policy
Committee of the Bank of England, at the Monetary Policy and the Markets Conference,
London, 13 December 2007.
My thanks for comments and/or for background work to Peter Andrews, Charlie Bean, Tim Besley, Roger Clews,
Andy Haldane, Colin Miles, James Proudman and Iain de Weymarn. Special thanks to Jing Yang and Alex
Haberis. For comments and background work to Damien Lynch. And for secretarial support to Sandra Bannister
and Cheryl Feeney.
* * *
Each month the MPC sets a policy rate, Bank Rate, that will prevail until our next policy
meeting. But no one - here today, in the market, or on the Committee - thinks that setting
the overnight money market rate for the coming 30 days can be enough to steer demand
conditions and maintain stable inflation. Rather, policy works on the basis of expectations of
the path of the Bank Rate in the future, and of how our policy settings will vary according to
economic conditions: the so-called "reaction function".
Perceptions of the reaction function therefore matter a lot and a great deal of effort goes into
being transparent about the three inputs: the Committee's objective; the MPC's views on the
shocks to demand and supply affecting the economy; and our views on how the economy
works and how our policy settings affect it. This conference is focused on one important
element of this: the role of financial markets in the setting and transmission of monetary
policy. That is covered in the Bank's publications on how the economy works, including the
Committee's 1999 paper on the Monetary Transmission Mechanism (MTM), and books
describing the models used in forecasting.1 But those high-level descriptions miss out an
awful lot about how the real and financial parts of the economy connect. Financial variables
are limited to the short-term interest rate, the exchange rate, and equities. Nothing on the
role of long-maturity interest rates, or on credit spreads and risk premia - which misses out a
whole universe of financial asset prices. Very little on credit more generally. Next to nothing
on money. And nothing at all on the role of bank intermediation.
These gaps were perhaps underlined by a degree of confusion amongst commentators
about the way in which Money and Credit featured somewhat more prominently in the
Committee's discussions during the backend of 2006 and into this year (Chart 1). With both
having been strong for a while, some asked whether this marked some kind of change in the
reaction function, implying a greater stress on nominal variables.
Given the near identity of deposits and bank lending, Money and Credit are often used
almost inseparably, even interchangeably, with wider measures of non-bank credit looked at
only when assessing the health of corporate and household sector balance sheets. But in
some circumstances one can do better to approach things the other way round, starting with
general credit conditions, examining the interactions of non-bank and bank lending, and then
broad money as a (partial) counterpart to M4L. My remarks today will follow that structure,
which will provide a framework for some observations about the current tightening in credit
conditions, as well as about the preceding expansion.
Credit
Credit is, of course, vital to any economy, enabling households and firms to make choices
about whether to bring forward or defer spending from income. There are conditions in which
it would play no active role, passively reflecting cyclical fluctuations in output, employment
and inflation. In a world of more or less complete transparency between borrowers and
lenders, very low transactions costs, and very low risk aversion, access to credit would not
be rationed; and ex ante yields on financial assets, including loans and bonds, would not
embody risk premia. So if households and firms wanted to bring forward spending in the face
of shocks to the economy, they would be able to do so restricted only by their need to remain
solvent.
But nobody believes that that is a description of the real world in which households and
companies manage their affairs. Both are, to a greater or lesser degree, rationed in their
access to credit, given that borrowers know a great deal more about their conditions and
prospects than do risk-averse lenders, and that lenders face obstacles in ensuring that
borrowers honour their contracts.2 The availability, price and terms of credit- whether
unsecured or secured - will be sensitive to a range of factors, including assessments of the
idiosyncratic risks of a particular borrower, and the risks common across borrowers.
Variations in these factors give rise to the possibility of a credit cycle.
A borrower's ability to pledge collateral can help to overcome the problems of "asymmetric
information" and enforceability, by evidencing its net worth and giving it a continuing stake in
its contract with the lender. This can give rise to the so-called "financial accelerator" channel
of the Monetary Transmission Mechanism (MTM), in which monetary policy works partly by
affecting lending terms through its effect on asset values and so the net worth of borrowers.3
But credit conditions also depend on the access to credit of the lenders themselves. There is
an important distinction here between intermediation across bank balance sheets and via the
capital markets, although as I shall describe it turns out to be blurred.
Total credit: capital markets and securitisation
For the moment, I shall put that distinction to one side in order to focus on total credit. A
series of environmental changes over the past decade or so have affected the quantity and
price of credit generally. Greater macroeconomic stability, and perceptions that it will persist
more or less uninterrupted, probably increased the supply of credit; and by reducing risk
premia, may have increased demand too (Diagram A).
Other developments are more likely to have worked purely through credit supply. The most
obvious is the growth of instruments such as credit derivatives and securitisation, associated
with an increased role for rating agencies in monitoring credit risk. This was in effect a shock
to technology, making portfolios transferable. By offering the prospect of better meeting
desired risk profiles and by separating origination from investment, it has brought more
nonbank financial institutions, and so more capital resources, into the credit markets, increasing
the supply of credit (Diagram B).
This seems to have been borne out in the significant shift in actual credit quantities and
prices up to the middle of this year.
In the United Kingdom, non-bank lenders have accounted for a greater share of credit
extension to both the household and corporate sectors (Charts 2-4).
A lot of that has been securitised (Chart 5). For the household sector, spreads on securitised
portfolios of both secured and unsecured credit fell between 2003 and 2005 (Chart 6). That
will have contributed to the fall in effective rates on the underlying mortgages and personal
loans (Chart 7).
The same broad picture holds for the corporate sector (Chart 8). An illustrative
decomposition suggests that, especially for sub-investment grade borrowers, the
compression of spreads could not be explained solely by reduced compensation for default
risk, with the excess possibly reflecting lower liquidity premia (Chart 9).4
These falls in spreads were material relative to the changes in the MPC's Bank Rate and to
the risk-free yield curve. For example, in the latest "policy cycle", we increased Bank Rate by
125bp over 11 months from August 2006. During that period, effective rates on new
mortgages rose by closer to 50bp. In other words, from around 2003, monetary policy
needed to take account of a progressive loosening of credit conditions.
The tables have now turned. Spreads have risen; the issuance of securitised portfolios of
household loans has collapsed; corporate bond issuance has fallen (Charts 10-11). It is
pretty clear that, for the time being, there has been an adverse shift in the supply of credit
from the non-banking sector. In part, that seems to be due to investors becoming less
confident that they can base decisions about exposures to complex credit portfolios on rating
agency ratings; this is akin to lenders deciding that their monitoring of risk was less good
than they thought. In part, it is due to various types of non-bank investor in credit finding
themselves facing actual or incipient liquidity pressures. Both as cause and effect, liquidity in
the capital markets is impaired. This is apparent in the opening up of a so-called "negative
basis" between the spreads on corporate bond and on equivalent credit-default swaps, which
unbundle the transfer of credit risk from the provision of funds and so are less affected by
liquidity hoarding (Chart 12).
A twin-engine financial system?
At various times over the past decade or so, it had been argued5 that the macroeconomy as
a whole should be more resilient to shocks to a financial system with "twin engines" -
combining capital markets with banking system intermediation of savings and credit. The
argument is that when the capital markets are impaired, banking can take more of the
burden, and vice versa. I have a good deal of sympathy for this view - but not for all
circumstances. It rather overstates the independence of capital markets and banking, as
recent developments graphically demonstrate.
First, whether through financing the purchase of credit assets by leveraged funds or
warehousing portfolios prior to sale or providing "liquidity lines" to conduits and other
investment vehicles, the banking system puts its capital and liquidity behind the distribution
of credit risk to the wider asset-manager universe. As the official sector stressed over recent
years, it is important to be clear about the circumstances in which risk can flow back to the
banking system.6
Second, the "twin engines" view draws too absolute a line between banks and non-bank
financial intermediaries. Alongside other asset managers, banks have been material
investors in securitised credit. In some respects, it may be more useful to distinguish
between intermediaries on the basis of whether they undertake some combination of maturity
transformation, leveraging their balance sheets, and mark-to-market valuations. Banks are
not alone in having these characteristics, and so there can be common shocks to bank and
non-bank investors. In a recent series of papers,7 Hyun Shin has argued that balance sheet
management of this kind amplifies the credit cycle. That sounds like the "financial
accelerator" model, except that Shin's position is that the outcomes can exceed those
warranted by fundamentals. His argument is that in the upswing of a business cycle, the rise
in asset values increases the accounting net worth of banks and other intermediaries,
enabling them to leverage up their balance sheets. This expands credit; and increases the
liquidity in capital markets, reducing liquidity premia embodied in asset prices; and so on.
And when the music stops, the process can be reversed as falls in asset values, leverage
and liquidity feed on each other. (For Shin, the villain is mark-to-market accounting, although
I would not want its virtues in reducing forbearance to be overlooked.)
Thirdly, the "twin engines" view may place insufficient weight on banks having remained the
principal originators of credit, given that small firms and households cannot issue bonds
directly into the capital markets. It has been argued that the growth of markets for securitising
loan portfolios made banks less relevant to overall credit conditions, and so to the business
cycle, because a bank's ability to originate credit becomes less intimately bound up with its
own financial strength.8 But if, as currently, the capital markets' appetite for securitised credit
diminishes, a larger proportion of loans will after all remain on the balance sheets of banks.
All this brings back into focus the potential macroeconomic relevance of bank lending.
Bank lending
The economic literature on the "bank lending" channel of the Monetary Transmission
Mechanism explores the conditions under which a tightening of monetary policy causes the
terms on bank lending to tighten over and above the increase in risk-free short-term real
rates. The literature has typically assumed (i) that a monetary policy tightening is effected by
the central bank withdrawing reserves from the system (or slowing the pace of reserves
injection); (ii) that banks are required to hold a proportion of transactions deposits in
reserves, so that reduced reserves provision entails slower deposit growth; and (iii) that they
do not have unrestricted access to liabilities that are not subject to reserves requirements,
and so cannot fill the gap left by slower deposit growth and must, instead, slow loan growth,
which they do by tightening credit conditions.9
The first two steps seem archaic. We effect
monetary policy changes by controlling the price not the quantity of central bank money in
the system; and, in the UK, banks choose their own reserves targets rather than having them
determined by a balance sheet ratio of some kind.
But the third plank in these models - restricted access to non-deposit liabilities, whether
capital-like or not - plainly is still relevant today. In a world of asymmetric information, banks
do not have unrestricted access to resources, and we do not believe that a bank's lending
behaviour is invariant to its capital gearing or to the composition of its liabilities.10 We do,
therefore, face questions about the extent to which a shock to banks' liquidity or capital
resources can bring about a shift in credit conditions with macroeconomic effects that, other
things being equal, monetary policy should seek to offset in order to maintain aggregate
demand in line with aggregate supply.
Over the past 15 years or so, when banks have seemed anything but restricted, easier
access to liquidity or capital may have brought about a progressive relaxation of bank lending
conditions. That this featured in commentary on monetary policy rather less than the recent
manifest tightening may say no more than that sharp contractions attract more attention than
gradual expansions. In a similar vein, on the whole, research does better at identifying these
"credit channel" mechanisms in the context of particular stressed episodes than in longer-run
averages.11
Be that as it may, it is beyond doubt that there has recently been an adverse shock to bank
balance sheets - involving capital, liquidity, and a potent "asymmetric" information
mechanism affecting a wide range of banks. I will pick out four elements in the story,
involving liquidity, counterparty-credit risk and capital.
First, near closure of the capital markets for leveraged loans, conduit and SIV commercial
paper, and RMBS has left banks whose business model is "originate and distribute"
unexpectedly holding on to loans and, in addition, facing the prospect of having to take
assets back on to their balance sheets. The consequent reintermediation is a hit to both
capital ratios and liquidity, as the banks have bigger books to fund. For these reasons alone,
big picture, banks responded from August onwards by tightening loan terms and hoarding
liquidity.
But the story does not end there. The second element is that access to resources (uninsured
deposits) from outside the banking sector has become more restricted since the summer.
ex ante
While the new risk-transfer instruments have plainly dispersed risks, lack of
disclosure left market participants highly uncertain about the scale and distribution of losses
across the banking sector itself. On top of that, open-ended investment vehicles that have (or
may have) themselves invested in structured-finance paper have felt compelled to preserve
liquidity, to guard against redemption risk. And one significant source of demand for bank
hybrid-capital instruments over the past half-decade or so, the SIVs, has been turned off due
to their own funding problems. Taken together, the upshot for the banking system has been a
shortening in the maturity of wholesale deposits, and an intermittent tightening of access to
hybrid capital instruments (Chart 13).
Coming on top of an involuntary increase in risk-weighted assets and reduced access to term
liquidity, the third component of the shock, apparent since late autumn, has been some
actual impairment of capital resources. Large banks especially have progressively written
down the values of structured-finance assets, reflecting deterioration in the underlying
position of the US household sector and in the values of a wide range of leveraged
instruments. But the adjustment is drawn out, partly due to uncertainty about appropriate
mark-to-market valuations given the impaired liquidity in ABS markets. To avoid this process
amplifying the credit cycle,12 some replenishment of common equity may be needed, and
has already begun.
The fourth element in the story, underway since August, has been distributional. Banks
relatively reliant on wholesale funding have bid up for funds. But doing so has been taken as
an adverse signal, prompting further rationing of wholesale money market lending at term
maturities and potentially deterring the strong from entering the market; this is what is known
as a "Lemons" problem13. In the United Kingdom, since August, mortgage approvals and
secured lending have declined by more at the medium-sized mortgage banks and specialist
lenders than at the largest UK banks, partly due to Northern Rock (Charts 14-15). This was
symmetric. Their mortgage portfolios grew faster over the previous years. All told, this looks
like a manifestation of the Kashyap and Stein finding, in various non-UK settings, that lending
is more cyclically variable at banks that start off with weaker balance sheets;14 or, as I would
prefer to put it, with concentrated income streams and/or funding sources.
Won't the macroeconomic effect of this be dampened by the bigger and more diversified
banks picking up the slack? It is important to distinguish the longer term from the near term.
The longer-term impact will depend on whether the structure of the industry shifts. The
securitisation boom seems to have altered the terms of trade in UK banking for a while. By
reducing reliance on retail deposits, it reduced barriers to entry. Lenders' margins fell (Chart
16), and credit conditions in the UK mortgage market eased. Conversely, the painful
reminder that undiversified funding and income sources may leave a bank unusually
vulnerable will probably bring about another shock to the structure of the market. The
persistent tightening in mortgage credit that that would bring was a factor in the MPC's
November projections.
In the near term, the extent to which the big or more diversified banks fill the gap will depend
on the extent to which they too preserve capital and liquidity in the face of the harsh
environment I have described.
Money, or bank intermediation
So far I have focused entirely on credit. Where does this leave money (or Money), the
starting point for much traditional monetary analysis?
Well, much that I have said about banks - their capacity, in the short run, to lever up their
balance sheets and expand credit at will; their role in providing liquidity insurance to
investment vehicles and corporates - turns precisely on their liabilities being money. And for
this reason, banks are after all decisively different from other intermediaries.
As transactions balances and so the means of exchange in our payments system, the
moneyness of bank deposits lies at the core of credit intermediation. Subject only but
crucially to confidence in their soundness, banks extend credit by simply increasing the
borrowing customer's current account, which can be paid away to wherever the borrower
wants by the bank "writing a cheque on itself". That is, banks extend credit by creating
money. This "money creation" process is constrained: by their need to manage the liquidity
risk - from the withdrawal of deposits and the draw-down of back-up lines - to which it
exposes them.15 Adequate capital and liquidity, including for stressed circumstances, are the
essential ingredients for maintaining confidence.16
If that excursion into the realm of financial stability appears to have drifted away from the
immediate issue of Money, it is because the health of bank balance sheets is relevant to both
the demand for money and its supply, even if this is apparent only occasionally.
Charles Goodhart has already, and very usefully, stressed the importance of recovering the
notion of shocks to the supply of broad money.17 In the main, however, in terms of the
underlying drivers, we are talking here of shifts in the supply of broad money caused by
shocks
to the supply of bank lending: banks create money by extending credit (Diagram C).
And as discussed earlier, key drivers in terms of bank balance sheet growth include the
variables that underpin bankers' confidence in borrowers; and, conversely, confidence in
banks themselves. It should come as no surprise that the "credit channel" macroeconomic
literature converged with bankers in focusing on the tangible collateral available from
borrowers, and on their own capital and liquidity (which includes the ex ante and ex post
terms on which they have access to central bank reserves).
Some important things can be said about this account of shifts in the supply of broad money.
First, in contrast to the textbook account of shocks to the Money supply via the proverbial
helicopter drop of base money (pound notes), firms and households are not caught in a bind
where, in aggregate, they are forced to hold the increased supply of broad money, even if it
exceeds demand. Following a shock to the supply of credit, in which some people or
companies become less credit constrained, it will be open to others to reduce their existing
borrowing as the extra money circulates around the economy via the purchase of goods,
services and financial assets.
Second, and more important, the shocks to credit supply are, in themselves, real not nominal
shocks. And like other real shocks, causing changes in the balance of Aggregate Demand
nominal
and Aggregate Supply, there is a effect only if monetary policy does not respond via
alterations to the path of short-term interest rates to keep the economy on a stable path and
in line with the inflation target.
Absent
an appropriate policy response, the easing in monetary conditions would in time feed
into inflation through an expansion of nominal spending. In the first instance, the expansion
of "liquidity" represented by faster money growth may sometimes work through asset prices.
That is because with imperfect substitution between different kinds of financial assets,
relative risk premia may be altered, which in turn may affect borrowing conditions in capital
markets.18
With an appropriate policy response, what should we expect to see in bank balance sheets,
in broad money growth, following a credit-supply shock? It might be that the path for broad
15
See Kashyap, A. K., R. Rajan and J. C Stein (2002), "Banks as liquidity providers: an explanation for the
The Journal of
coexistence of lending and deposit-taking", Finance, Vol. 57, No. 1, pp 33-73.
16
Acharya, V. V., H. S. Shin and T. Yorulmazer (2007), "Fire sales, foreign entry and bank liquidity", C.E.P.R
Discussion Paper, No. 6309.
17
See Goodhart, C. A. E. (2007), "Whatever Became of the Monetary Aggregates?", Peston Lecture at Queen
Mary College, London; King M. A. (2007), "The MPC ten years on", lecture to the Society of Business
Economists, Bank of England Quarterly Bulletin, Summer 2007, pp 272-85; and Tucker P. M. W. (2007),
"Central banking and political economy: the example of the UK's Monetary Policy Committee" speech at the
Inflation Targeting, Central Bank Independence and Transparency Conference, Cambridge, Bank of England
Quarterly Bulletin, Autumn 2007, pp445-52.
18
There is an echo here of a channel stressed by Brunner & Melter, but with the impulse coming from the central
bank's short-term interest rate rather than the quantity of reserves, and the transmission into risk premia and
so other asset prices coming via the expected path of the policy rate and broad money rather than via narrow
money.
BIS Review 149/2007
money should be unaltered in the medium term. In other words, a persistent acceleration (or
deceleration) of M4 would be indicative of a nominal shock, jeopardising achievement of the
inflation target. The world is not so simple, however. The underlying drivers of the change in
the supply of bank lending, and so in broad money, may also bring about shifts in the
demand for money, validating a different level for real money balances - perhaps most
obviously, if investment and so the economy's productive capacity were affected.
For some underlying shocks, it is probably better to think about the effects on banking
intermediation rather than simply on bank lending. Faced with a change in their costs and
opportunities, bankers might sometimes be able to adjust the terms on either their assets or
their liabilities (or both). Currently, banks have incurred an adverse shock to their wholesale
funding (Chart 17). The evidence so far suggests that, as well as tightening terms for
borrowers, they are improving rates offered on retail deposits.
Where does that leave us on Money? It is clear enough from the long-run relationship
between money growth and inflation that prolonged shifts in money growth can be an amber
light (Chart 18). And possible liquidity effects mean that, through risk premia, shifts in the
quantity of money may feed back into financial asset markets and so into broader credit
conditions. But there are no "easy wins" when it comes to analysing Money demand and
supply.19
Money and credit in the current conjuncture
Those challenges are certainly apparent right now. Judging from a combination of market
intelligence, surveys and prices, there is no doubt that credit conditions for both households
and firms have tightened materially. The Bank's new Credit Conditions Survey, published for
the first time in September, recorded a clear tightening in availability of credit to corporates
over the previous quarter. A month later, a mini-survey unsurprisingly revealed tighter
conditions for households too.20 Spreads on corporate and household credit are already
higher across the board; and for risky borrowers, financing costs have risen notwithstanding
the fall in risk-free yields.
Since August, the MPC has stressed, however, that it will not be sufficient in these
circumstances to look solely at the price of credit, as there could be increased quantity
rationing. The standard view is that households and small firms are more likely to be
adversely affected in such circumstances than large firms, which typically have greater
access to capital markets. But as this disturbance affected the wholesale loan markets, we
will need to monitor conditions for corporate bond and loan issuance. Indeed, we will need to
look at total credit, and carefully across different sectors to track the impact of the tightening.
But timely and rich data are available on just bank lending. And interpreting them is not
straightforward given the nature of the shock to the system. If reintermediation is significant,
banks will be taking back on to their balance sheets conduit and investment vehicle paper or
just holding onto loans for longer than usual before they can be sold onto the capital markets.
It cannot be ruled out that, for a while, the M4L growth rate may deceive as to the underlying
pace of credit expansion in the economy.
That is important because, in a nutshell, the turmoil in financial markets is not just a "City"
event. How potent it will be macroeconomically will depend on how long current conditions
persist, and the feedback loop between the financial economy and the real economy.
As to its persistence, necessary conditions for an alleviation of the current strains in credit
markets are probably at least twofold. First, that the US housing and household debt markets
stabilise. Second, that banks and other financial intermediaries recognise impairments to
asset values, so that uncertainties about counterparty credit risks begin to reduce.
On the financial-real economy interaction, we must try to avoid a vicious circle in which
tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit
supply, and slower aggregate demand feed back on each other. A variety of policy
responses are possible. The announcement yesterday by central banks of co-ordinated
action via term auctions to alleviate pressure in financing markets is directed at that. Second,
regulatory authorities around the world are monitoring banks' liquidity and capital positions,
including in the context of Basel II. And, thirdly, monetary policy also can in principle play a
role, through what is effectively a "financial accelerator" working through bank balance
sheets, where that is consistent with maintaining stable inflation in the medium term.
In the UK, the starting point has been robust domestic demand; the leveraged-buyout sector
aside, generally healthy corporate balance sheets; somewhat more vulnerable household
balance sheets;21 and potentially stretched commercial and residential property prices.
At the Committee's November meeting, I explored the case for an "insurance cut" addressed
to the downside risks from tightening credit conditions. The case for such a cut was
strengthened by Bank Rate, at 53⁄4%, standing at a level that was most probably mildly
restrictive. But that had to be weighed against the upward pressures on inflation stemming
largely from the rise in energy and other commodity prices. Our November projections
seemed to me likely to validate the expectation already embodied in the money market curve
that Bank Rate would over time be lowered, representing some offset to the tightening in
liquidity and credit premia. That being so, on balance, I concluded that an immediate cut was
not necessary; and that "no change" would give the Committee a valuable opportunity to
explain in the Inflation Report the implications of both the credit and commodity shocks,
underlining that the Committee remains focused on anchoring inflation expectations and so
achieving the inflation target over the medium term.
Looking ahead, I noted the importance of distinguishing between, on the one hand, the
passing through into the macroeconomy of the shocks that had already occurred to credit
conditions and to commodity prices; and, on the other hand, the possibility of new shocks on
either or both fronts.
That was my starting point for our December meeting, the minutes of which will be published
next week.
Summary and conclusions
Let me try to pull together some of my central themes.
I have stressed that we should take care to avoid talking about money when we mean credit.
In a similar spirit, we should be clear when we mean total credit and when bank lending, but
without assuming the two are divorced.
I have also stressed the need for attention to the underlying drivers of credit conditions
throughout the economic cycle. In today's financial system, we may well need richer data on
credit quantities and flows outside the banking sector, perhaps along the lines of the US Flow
of Funds statistics. The Bank's new Credit Conditions Survey is also designed to give us
better qualitative information to put alongside the quantity and price data. Even so, as with
asset prices more generally, we will sometimes find it hard to distinguish between changes in
credit conditions warranted by fundamentals and those that are not. Failure to recognise
fundamentally warranted and sustainable shifts would deplete welfare. But it is distinctly
uncomfortable for the world's central banks to rely entirely on mopping up after a bubble
bursts: one imbalance can lead to another.22 The central banking community does not yet
have a satisfactory way through this dilemma.
And Money? It occupies one end of the liquidity spectrum, and so changes in the quantity of
money might potentially affect risk premia, and so credit conditions more generally. Gauging
that is a formidable challenge. As an input to policy, there is just no alternative to getting
one's hands dirty in analysing the monetary data. With an institutional rather than functional
definition of broad money, special c