The Macroeconomic Relevance of Credit Flows: An Exploration of U.S. Data

Alexander Herman, Deniz Igan and Juan Sole

No 2015/143, IMF Working Papers from International Monetary Fund

Abstract: This paper exploits the Financial Accounts of the United States to derive long time series of bank and nonbank credit to different sectors, and to examine the cyclical behavior of these series in relation to (i) the long-term business cycle, (ii) recessions and recoveries, and (iii) systemic financial crises. We find that bank and nonbank credit exhibit different dynamics throughout the business cycle. This diverging cyclical behavior of output and bank and nonbank credit argues for placing greater emphasis on sector-specific macroprudential measures to contain risks to the financial system, rather than using interest rates to address any vulnerabilities. Finally, we examine the role of bank and nonbank credit in the creation of financial interconnections and illustrate a method to conduct macro-financial stability assessments.

Keywords: WP; nonbank credit; nonbank sector; nonbank mortgage; nonbank lending; interest rate; nonbank counterpart; nonbank credit to bank; nonbank financial activity; Macro-financial linkages; Financial intermediation; Liquidity transformation; Nonbank financial institutions; financial activity; nonbank credit to the private sector; nonbank activity; credit to nonbank; credit to household; nonbank entity; Bank credit; Credit; Consumer credit; Credit cycles; Business cycles; Global (search for similar items in EconPapers)
Pages: 41
Date: 2015-06-30
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Citations: View citations in EconPapers (5)

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