The Flow Approach to Credit Markets: Methodology, Measurements, and Macro Perspectives
96 Pages Posted: 27 Mar 2020 Last revised: 2 Jan 2023
Date Written: March 3, 2020
Abstract
We provide empirical foundations for a flow approach to credit markets and derive novel extensive/intensive margin decompositions for aggregate credit dynamics. Using bank-firm level data for commercial lending in France, we establish that the creation and destruction of credit relationship flows are (i) one order of magnitude larger than net flows, and (ii) volatile and pervasive throughout the cycle. Loan portfolios are actively adjusted along the extensive margin, which (iii) contributes up to 46% of the cyclical and 90% of the long-run credit variations. We also document that the extensive/intensive origin of credit declines during downturns matter for the recovery path and highlight the distinct features of the monetary policy channels associated with each margin.
Keywords: Credit Flows; Financial Institutions; Monetary Policy Transmission; Relationship Lending; Search and Matching
JEL Classification: E50, G20
Suggested Citation: Suggested Citation