Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Financial stability and financial risks

Monetary Trends and Business Cycles in Denmark Since 1875

The paper constructs summary financial-account stock data for Denmark 1875-2005 on an annual frequency and explores the historical monetary and financial trends and cycles on the basis of the new data set. Commercial banks, savings banks and mortgage-credit institutions played a significant credit-supplying role in the Danish economy already during the late 19th century and in the beginning of the twentieth century. A turning point emerged during the early 1930s, and by the middle of the 1950s the ratio of credit to GDP had declined substantially. Since then the trend has reversed but the pre-World War I level was not reached until the decade from the mid-1970s to the mid-1980s. To some extent real asset prices have displayed a similar pattern. There has been a much stronger positive correlation between money and prices at the long-term frequencies (8-40 years cycles) than at the business cycle frequency (2-8 years), but in the post-World War II period prices seem to have lead money at all frequencies. In the period 1875-1945 house prices led credit from mortgage-credit institutions with a considerable lead-time (6 years) in the long-term cycles – in the post World War II period the lead-time has been considerable shorter (1 year). During the whole period 1875-2005 real credit granted by banks and mortgage-credit institutions seems to have been almost contemporaneous with real GDP, and the largest correlation coefficients have occurred in the long-term cycles. The overall conclusion in the paper is that financial accounts are a useful framework for organising and analysing financial data even when data sources are somewhat fragmented and sparse, which is often the case in relation to historical financial statistics.