Modeling Aggregation and Interlinkages

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Modeling Aggregation and Interlinkages

  1. 1. AGGREGATION &INTERLINKAGES:THE IRISHCASE. Stephen Kinsella & G. Tiou-Tagba Aliti University of Limerick, Ireland
  2. 2. 3 STORIES OFLINKAGES THIS MORNING.
  3. 3. 1. CREDIT -> DEBT2. PRIVATE -> PUBLIC3. EXPECTATIONS -> REALITY
  4. 4. A DEMAND-DEFICIENT ECONOMY.40,000 Final Domestic Demand, €m30,00020,00010,000 0 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q 04 05 06 07 08 09 10 11 12 20 20 20 20 20 20 20 20 20
  5. 5. 15 EU Ireland11 8 4 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Ireland and EU: Unemployment rates, 2002-2012
  6. 6. <CREDIT -> DEBT>
  7. 7. n Figure 3 Savings, Investment and Net Lending/Borrowing ofe Households t €billionsr 50e 40a 30A 20eg 10d 0– -10no -20 -30 -40 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GFCF Net Capital Transfers Shares Deposits Loans Insurance&Pensions Gross Savings
  8. 8. n Figure 3 Savings, Investment and Net Lending/Borrowing ofe Households t €billionsr 50e 40a 30A 20eg 10d 0– -10no -20 -30 -40 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GFCF Net Capital Transfers Shares Deposits Loans Insurance&Pensions Gross Savings
  9. 9. n Figure 3 Savings, Investment and Net Lending/Borrowing ofe Households t €billionsr 50e 40a 30A 20eg 10d 0– -10no -20 -30 -40 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GFCF Net Capital Transfers Shares Deposits Loans Insurance&Pensions Gross Savings
  10. 10. Figure 3. Household Debt to Gross Disposable Income(percent)230 Ireland210 Spain190 UK USA170150130110 90 70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sources: OECD; and IMF staff calculations.
  11. 11. Figure  1.  An  explosion  of  lending  by  private  sector  banks  led  to  Irelands  current  malaise.  Source:  Kinsella  and  OSullivan,  2012.
  12. 12. Figure 2: The Turn of the Credit CycleBillions of 2002 euros) 100 30 Consumption 95 Disposable income 25 Net borrowing/lending (RHS) 90 Net wealth (Index) 20 85 15 80 10 75 5 70 0 65 -5 60 -10 2002Q1 2004Q3 2005Q3 2008Q1 2010Q3 2011Q3 2002Q3 2003Q1 2003Q3 2004Q1 2005Q1 2006Q1 2006Q3 2007Q1 2007Q3 2008Q3 2009Q1 2009Q3 2010Q1 2011Q1 Sources: CBI; CSO; and IMF staff calculations.
  13. 13. Maria Woods and Siobhán O’Connell Ireland’s Financial Crisis: A Comparative Context CentralBank of Ireland Quarterly Bulletin 04 / October 12
  14. 14. </CREDIT -> DEBT>
  15. 15. <PRIVATE -> PUBLIC>
  16. 16. Figure 5. Analytical Framework Balance sheet channel Disposable income Gross wealth Collateral value Lending Inflows Exports Saving rate Real channel Lending channel RoW RoW Consumption Investment Amortization Outflows Imports Demand Asset prices Source: IMF staff.he lending channel lifts asset prices which in turn eases
  17. 17. 200 120%180 100%160140 80%120100 60%80 40%6040 20%20 0 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Government Debt GDP Government Debt/GDP
  18. 18. 180160 Composition of Govt. Debt.140120100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 AF.2 Deposits AF.33 Securities AF.4 Loans
  19. 19. AN OLD SCHOOL IDEA
  20. 20. Eq 49-Eq 19: Households deposits Eq16-Eq30: Gov ernment and Rest of the World bonds held by Financial Corporations (Assets) held by Households (Assets)126,000 650124,000 600122,000 550120,000 500118,000 450116,000 400114,000 350 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 Eq18-Eq34: Non-Financial and Financial Corporations equities Eq17-Eq52: Households loans from Financial Corporations (Liabilities) held by Households (Assets)210,000 70,000 65,000200,000 60,000190,000 55,000 50,000180,000 45,000170,000 40,000 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 shock Empirical data v alue
  21. 21. Eq 50-Eq 15: Gov ernment deposits held by Financial Corporations (Assets) Eq7-Eq31: Gov ernment bond (Liabilities)25,000 100,00020,000 80,00015,000 60,00010,000 5,000 40,000 0 20,000 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 Eq13-Eq55: Gov ernment Eq14-Eq35: Non-Financial and Financial Corporations equities loans from Financial Corporations (Liabilities) held by Gov ernment (Assets)50,000 28,00040,000 24,00030,00020,000 20,00010,000 16,000 0-10,000 12,000 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 07:3 08:1 08:3 09:1 09:3 10:1 10:3 11:1 Shock Empirical data v alue
  22. 22. <EXPECTATIONS -> REALITY>
  23. 23. Ireland 9 year Generic Bid Yield
  24. 24. </EXPECTATIONS -> REALITY>
  25. 25. AGGREGATION &INTERLINKAGES:THE IRISHCASE. Stephen Kinsella University of Limerick, Ireland

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