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

42 Pages Posted: 21 Jul 2015

See all articles by Alexander Herman

Alexander Herman

International Monetary Fund (IMF)

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division

Juan A. Solé

International Monetary Fund (IMF)

Date Written: June 2015

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: Flow of funds, United States, Banks, Nonbank financial sector, Bank credit, Household credit, Business cycles, Financial crises, Economic recession, Economic recovery, Interconnectedness, Data analysis, Macro-financial linkages, Financial intermediation, Liquidity transformation

JEL Classification: E44, E52, G21

Suggested Citation

Herman, Alexander and Igan, Deniz and Sole, Juan A., The Macroeconomic Relevance of Credit Flows: An Exploration of U.S. Data (June 2015). IMF Working Paper No. 15/143. Available at SSRN: https://ssrn.com/abstract=2633929

Alexander Herman (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Juan A. Sole

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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