Financial markets, portfolio theory and the credit crunch
Financial markets, portfolio theory and the credit crunch
This thesis argues that a credit crunch occurred in the early 1990's which had implications for both the macro economy and the financial markets. It is determined that credit is crucial to the policy maker when considering the monetary transmission mechanism. In order to determine the impact that monetary changes will have on the real variables in the economy, credit and the role of banks has to be considered. The thesis demonstrates that bank assets and liabilities should not be treated as perfect substitutes for other borrowing and saving instruments. Empirical evidence in the thesis is consistent with the view that in the final quarter of 1989 signals in the credit market became confused and attempted corrective policies resulted in the credit crunch. The thesis demonstrates that the long run equilibrium that the economy was working towards prior to 1989 is different to the one after this date. This supports the hypothesis that a structural break occurred.
Recent events and evidence in this thesis indicate that economic analysis needs to be amended in order to make the role of a bank balance sheet identity explicit in the analysis. Until recently, money has been regarded as neutral and therefore, the real effects of money and the credit channel have been ignored. This is shown to be a crucial misspecification of previous models. This thesis has extended any previous analysis by applying to the United Kingdom macro economy an IS/LM model that incorporates a bank balance sheet identity. This analysis integrates the credit channel of the monetary transmission mechanism into a traditional model.
The thesis further extends research by modelling the lending market within a tobit framework. Results support the hypothesis that the demand curve dominates in some periods and the supply curve in others.
University of Southampton
1999
Clarke, Tanya Michelle
(1999)
Financial markets, portfolio theory and the credit crunch.
University of Southampton, Doctoral Thesis.
Record type:
Thesis
(Doctoral)
Abstract
This thesis argues that a credit crunch occurred in the early 1990's which had implications for both the macro economy and the financial markets. It is determined that credit is crucial to the policy maker when considering the monetary transmission mechanism. In order to determine the impact that monetary changes will have on the real variables in the economy, credit and the role of banks has to be considered. The thesis demonstrates that bank assets and liabilities should not be treated as perfect substitutes for other borrowing and saving instruments. Empirical evidence in the thesis is consistent with the view that in the final quarter of 1989 signals in the credit market became confused and attempted corrective policies resulted in the credit crunch. The thesis demonstrates that the long run equilibrium that the economy was working towards prior to 1989 is different to the one after this date. This supports the hypothesis that a structural break occurred.
Recent events and evidence in this thesis indicate that economic analysis needs to be amended in order to make the role of a bank balance sheet identity explicit in the analysis. Until recently, money has been regarded as neutral and therefore, the real effects of money and the credit channel have been ignored. This is shown to be a crucial misspecification of previous models. This thesis has extended any previous analysis by applying to the United Kingdom macro economy an IS/LM model that incorporates a bank balance sheet identity. This analysis integrates the credit channel of the monetary transmission mechanism into a traditional model.
The thesis further extends research by modelling the lending market within a tobit framework. Results support the hypothesis that the demand curve dominates in some periods and the supply curve in others.
This record has no associated files available for download.
More information
Published date: 1999
Identifiers
Local EPrints ID: 463637
URI: http://eprints.soton.ac.uk/id/eprint/463637
PURE UUID: 4056fcf4-d53f-41c3-a247-29d9cc00a0cc
Catalogue record
Date deposited: 04 Jul 2022 20:54
Last modified: 04 Jul 2022 20:54
Export record
Contributors
Author:
Tanya Michelle Clarke
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics