@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f Give me a while - I am on it. If I fail, it is the taunting @colin93f ‘s fault.
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f 1. Obviously I think the credit impulse is a valid indicator but it can be abused. @juanantolindiaz is correct to point out that causality is not causation
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 2. I called the measure the credit impulse not to imply causality, but because the way it is measured is identical to the fiscal impulse. I don’t think this helped
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 3. Causality between demand and credit might work in both directions. The insight is that changes in the flow of one will be correlated with changes in the flow of the other
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 4. I think the case for the validity of the measure was well made in 2009, when credit growth was negative
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 5. The popular “Zombie US households” view argued that the private sector was over-indebted and, because they would need to delever, demand growth would be weak
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 6. The credit impulse showed that a slowdown in deleveraging would be consistent with stronger US demand growth
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 7. I other words, the US private sector could delever and demand could rebound at the same time
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 8. This was not widely understood or anticipated, and the demand rebound was stronger than anticipated
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 9. This is evident in consensus or IMF forecasts and asset prices. The sector most exposed to this rebound (consumer discretionary) outperformed
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 9b. Exactly the same thing happened in Spain starting in 2013. To see the surprise, look at asset prices or the change in consensus forecasts for 2014/15 GDP growth
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 10. @juanantolindiaz makes a great point about identifying exogenous changes that impact credit supply
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 11. These might include banking regs or the stress tests, and they highlight why the bank lending surveys are so important.
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 12. But aside from those identifiable supply shocks, agents probably determine borrowing and spending at the same time.
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 13. If new borrowing levels are historically high (low), there is a greater chance that they might rise/fall. Think China after 2010.
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 14. Whatever the supply/demand interactions, this raises the possibility that new borrowing will fall (rise), and spending growth will slow (accelerate).
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 15. In the same way we understand base effects for spending, we understand base effects for credit. But they must focus on the flow, not the stock. This can play a significant role in forming your view
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 16. Once one realises 1) that the causality can work both ways, and 2) that the impact is felt immediately and not with a lag, then the tests @Juanantolndiaz mentions are less helpful
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz 17. Testing is tough. Simultaneity is an issue and the system is not identified, and I can’t find a decent instrument. Suggestions welcomed.
@DomWhiteUK @M_PaulMcNamara @DavidCShipley @colin93f @JuanAntolinDiaz Right, that is it. I am not sure this has worked, and email/voice would be better. Not sure what email etiquette is here. michael.biggs@gam.com if anyone is interested.
