Short-Run Dynamics in Bank Credit: Assessing Nonlinearities in Procyclicality

The aim of this paper is to investigate the relationship between credit and business cycles within a nonlinear framework. To this end, we rely on the estimation of smooth transition regression models for a sample of 17 OECD countries over the 1986-2010 period. Our findings show that credit procyclicality is nonlinear, depending on economic conditions. More specifically, credit is highly procyclical in extreme-booms and busts-regimes in Canada, the UK and the US, while procyclicality is less pronounced in one or both extreme regimes in Australia, Belgium, France, Finland, the Netherlands, Norway, and Spain. Our results also emphasize the importance of - financial factors in explaining the short-run behavior of bank credit.

Keywords: Credit cycle, business cycle, nonlinearity, smooth transition regression models

JEL Classification: C33, E32, E51, G21

Suggested Citation: Suggested Citation

Bouvatier, Vincent and López-Villavicencio, Antonia and Mignon, Valérie and Mignon, Valérie, Short-Run Dynamics in Bank Credit: Assessing Nonlinearities in Procyclicality (August 25, 2011). Available at SSRN: https://ssrn.com/abstract=1916691 or http://dx.doi.org/10.2139/ssrn.1916691