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Financing Private Credit

Nina Boyarchenko and Leonardo Elias

No 1111, Staff Reports from Federal Reserve Bank of New York

Abstract: Using data on balance sheets of both financial and nonfinancial sectors of the economy, we use a “demand system” approach to study how lender composition and willingness to provide credit affect the relationship between credit expansions and real activity. A key advantage of jointly modeling the demand for and supply of credit is the ability to evaluate equilibrium elasticities of credit quantities with respect to variables of interest. We document that the sectoral composition of lenders financing a credit expansion is a key determinant for subsequent real activity and crisis probability. We show that banks and nonbanks respond differentially to changes in macroeconomic conditions, with bank credit more sensitive to economic downturns. Our results thus suggest that secular changes in the structure of the financial sector will affect the dynamics of credit boom-bust cycles.

Keywords: intermediated credit; leverage cycles; corporate bonds (search for similar items in EconPapers)
JEL-codes: G21 G22 G23 G32 (search for similar items in EconPapers)
Pages: 69
Date: 2024-08-01
New Economics Papers: this item is included in nep-fdg
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DOI: 10.59576/sr.1111

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