Determinants of the Credit Cycle: A Flow Analysis of the Extensive Margin

Vincenzo Cuciniello and Nicola Di Iasio

Journal of Money, Credit and Banking, 2025, vol. 57, issue 5, 1275-1298

Abstract: Examining two decades of loan‐level data on Italian bank loans to households and businesses, we find that credit fluctuations primarily result from changes in the number of borrowers (extensive margin). Employing a flow approach, we decompose the extensive margin into inflows and outflows, revealing that borrower inflows significantly contribute to total borrower volatility. Moreover, borrower inflows exhibit greater volatility than outflows, are procyclical, and lead the business cycle. Utilizing a shift‐and‐share instrument derived from sectoral borrower inflows, our findings reveal that local markets experiencing increased credit demand exhibit a loosening of lending standards and a rise in bad loans. This sheds light on the intricate relationship between credit demand and financial instability at the local level.

Date: 2025
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https://doi.org/10.1111/jmcb.13150

Related works:
Working Paper: Determinants of the credit cycle: a flow analysis of the extensive margin (2021)
Working Paper: Determinants of the credit cycle: a flow analysis of the extensive margin (2020)
Working Paper: Determinants of the credit cycle: a flow analysis of the extensive margin (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:57:y:2025:i:5:p:1275-1298

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