January 2013 issue contents
Monetary Aggregates and the Central Bank's Financial Stability Mandate

by Hyun Jeong Kima,Hyun Song Shinb,and Jaeho Yunc


Money is the balance sheet counterpart to bank lending. As such, highly procyclical components of money reflect incremental bank lending that may reverse abruptly as financial conditions deteriorate. Components of monetary aggregates that correspond to cross-border banking sector flows depend sensitively on both domestic and global financial factors and display a procyclical pattern that may be utilized in constructing a set of indicators of the vulnerability of the financial system to crises. We illustrate our arguments by drawing on the experience of Korea and by presenting an empirical analysis of crossborder banking flows into "demand-pull" and "supply-push" components.

JEL Codes: E43, E44, G21.

Full article (PDF, 39 pages 1,396 kb)

a Bank of Korea 
b Princeton University 
c Ewha Womans University