Understanding Bank and Nonbank Credit Cycles: A Structural Exploration

Posted: 9 May 2019

See all articles by Ceyhun Bora Durdu

Ceyhun Bora Durdu

Board of Governors of the Federal Reserve System

Molin Zhong

Board of Governors of the Federal Reserve System

Date Written: May, 2019

Abstract

We explore the structural drivers of bank and nonbank credit cycles using an estimated medium-scale macro model that allows for bank and nonbank financial intermediation. We posit economy-wide aggregate and sectoral disturbances to potentially drive bank and nonbank credit growth. We find that sectoral shocks affecting the balance sheets of entrepreneurs who borrow from the financial sector are important for the business cycle frequency fluctuations in bank and nonbank credit growth. Economy-wide entrepreneurial risk shocks gain predominance for explaining the longer-horizon comovement between the two series.

JEL Classification: G01, G21, E44, E3

Suggested Citation

Durdu, Ceyhun Bora and Zhong, Molin, Understanding Bank and Nonbank Credit Cycles: A Structural Exploration (May, 2019). FEDS Working Paper No. 2019-31, Available at SSRN: https://ssrn.com/abstract=3385455 or http://dx.doi.org/10.17016/FEDS.2019.031

Ceyhun Bora Durdu (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Molin Zhong

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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