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Journal articles on the topic 'Credit cycle'

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Author: Grafiati

Published: 4 June 2021

Last updated: 31 May 2022

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1

Chang, Yuan. "Financial Soundness Indicator, Financial Cycle, Credit Cycle and Business Cycle－Evidence from Taiwan." International Journal of Economics and Finance 8, no. 4 (March 23, 2016): 166. http://dx.doi.org/10.5539/ijef.v8n4p166.

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<p>Business cycle is the repeated expansions (from trough to peak) and contractions (from peak to trough) of real economic activity. Credit cycle is the cyclical process of the bank credit, ranging from short/long-term, loan to enterprise and loan to individual. Financial cycle reflects ups and downs in asset prices and financial institution's balance sheet. This paper examines the linkage among cycles as well as their lead-lag relationship. Theoretically, credit cycle is one of reasons driving business cycle, and financial cycle is a fundamental cause of credit cycle. Based on Taiwan’s quarterly data, this paper firstly identifies cyclical behavior of indicators of real economic activity, bank credit and assets prices in recent decade by defining expansion phases and contraction phases of cyclical variables. Second, this paper calculates concordance index to examine the degree of synchronization among cycles. Third, while the soundness for assets and liabilities of financial institution may drive financial cycle, this paper employs IMF’s Financial Soundness Indicator (FSI) as predictor of expansion and contraction phase of cyclical variables. Specifically, the paper assesses the health of bank’s balance sheet variables by Probit estimation on linkage between FSIs and expansion/contraction phase of cycle. Based on empirical evidence, the knowledge about the extent of assets/liability condition of financial institution corresponding to the expansion and contraction phase of financial, credit and business cycle is enhanced. Authority concerning about financial stability should oversight the performance of FSIs and then engage in prompt corrective actions when the level and volatility of those indicators sharply.</p>

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2

Aikman, David, Andrew G. Haldane, and Benjamin D. Nelson. "Curbing the Credit Cycle." Economic Journal 125, no. 585 (March 26, 2014): 1072–109. http://dx.doi.org/10.1111/ecoj.12113.

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3

Gootzeit, Michael J. "WICKSELL'S INFLATIONARY CREDIT CYCLE." Metroeconomica 44, no. 2 (June 1993): 146–66. http://dx.doi.org/10.1111/j.1467-999x.1993.tb00756.x.

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4

Bluhm, Christian, and Walter Mussil. "Balanced Credit Cycle Management." Schmalenbachs Zeitschrift für betriebswirtschaftliche Forschung 62, S61 (January 2010): 68–82. http://dx.doi.org/10.1007/bf03372982.

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5

Mamonov, Mikhail, Vera Pankova, Renat Akhmetov, and Anna Pestova. "Financial Shocks and Credit Cycles." Russian Journal of Money and Finance 79, no. 4 (December 2020): 45–74. http://dx.doi.org/10.31477/rjmf.202004.45.

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This paper compares the contribution of internal and external financial shocks to the formation of credit cycle phases using cross- country quarterly data for 27 countries, including advanced and emerging economies, for the period from 1990 through 2019. To conduct comparative analysis, we apply IV Probit models of the credit cycle which take into account the relationship between the credit and business cycles the inertia of the cycles and the non-linearity of the transmission of internal and external financial shocks to the economy through the credit market. In our sample of countries, the transmission of shocks to credit cycle phases proves to be non-linear (a switching effect is observed depending on the time elapsed since the shocks occurred); with the economic effect of the external capital inflow shock being in absolute value twice stronger than that of the bank credit supply shock (on average for the current and subsequent quarters); in turn, the bank credit supply shock is twice stronger than the monetary policy shock. A counterfactual analysis of the role of financial shocks in the formation of the credit cycle in Russia indicates an increase in the effectiveness of the monetary authorities in terms of their ability to control the phases of the credit cycle and, accordingly, a relative decrease in the role of credit supply shocks, while the global financial cycle retains its dominance.

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6

Karminsky, A. M., and N. F. Dyachkova. "Empirical study of the relationship between credit cycles and changes in credit ratings." Journal of the New Economic Association 48, no. 4 (2020): 138–60. http://dx.doi.org/10.31737/2221-2264-2020-48-4-6.

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The purpose of this study is to identify relationships between changes in ratings and the impact of credit cycles on them. The following methodology was used: we built up an applied statistical probit-model of multiple-choice to determine ratings changes. Our model includes a credit gap indicator for assessing the impact of the credit cycle. Our empirical research also includes a review of the time changes in the ratings during a ten-year period for developed and developing countries. The results of our study show that credit ratings are not only affected by cyclical changes within the credit cycle, but also are delayed in its relation to the cycle. From a practical point of view, these results indicate the practical need to take into account various macroeconomic factors because of the impact of credit cycles for forecasting and risk management in financial markets. During the changes of credit cycles, the rating agencies consider the shifts in macrostructure and in valuation of parameters accordingly to the distribution and ratings proportion for investment and speculative ratings classes. The level of credit ratings and credit gap indicator are strongly influenced by two macroeconomic factors: GDP growth rates and credit spread, the last impact factor relates to the mechanism of monetary policy (as a narrow lending channel). In the end of the credit cycle and the stage of recession (downturn), which is marked by empirical evidence, large number of speculative credit ratings occur and the credit spread begins increase which leads to the rise of negative effects in financial markets.

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7

Lin, Xi, Yafeng Yin, and Fang He. "Credit-Based Mobility Management Considering Travelers’ Budgeting Behaviors Under Uncertainty." Transportation Science 55, no. 2 (March 2021): 297–314. http://dx.doi.org/10.1287/trsc.2020.1014.

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This study analyzes the performance of a credit-based mobility management scheme considering travelers’ budgeting behaviors for credit consumption under uncertainty. In the scheme, government agencies periodically distribute a certain number of credits to travelers; travelers must pay a credit charge for driving to complete their trips. Otherwise, they can take public transit free of credit charge. Consequently, within a credit-releasing cycle, travelers must budget their credit consumption to fulfill their mobility needs. Such budgeting behaviors can be viewed as a multistage decision-making process under uncertainty. Considering a transportation system with a credit scheme, we propose parsimonious models to investigate how the uncertainty associated with individual mobility needs and the subsequent travelers’ credit-budgeting behavior influence the multistage equilibrium of the transportation system, as well as the performance of the credit scheme on managing the transportation system. Both analytical and numerical results suggest that travelers tend to restrict their credit consumption in the early stage of a credit-releasing cycle to hedge against the risks associated with using up all credits, which compromises the performances of credit-based schemes. Moreover, a negative attitude toward risk aggravates the discrepancy between the credit consumption of the early and late stages. Last, we propose a contingency credit scheme to mitigate the negative impact incurred by travelers’ budgeting behaviors.

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8

Widodo, Arif. "THE ROLE OF INTEGRATED ISLAMIC COMMERCIAL AND SOCIAL FINANCE FOR CURBING CREDIT CYCLES AND ACHIEVING MACROPRUDENTIAL OBJECTIVE." Journal of Islamic Monetary Economics and Finance 3, no. 2 (March 28, 2018): 139–80. http://dx.doi.org/10.21098/jimf.v3i2.887.

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It is widely believed that Islamic finance is inherently stable since the principle of risk-sharing and linking the financial to real counterpart in particular through its social finance are applied, hence the financial stability may successfully be attained. If mimicking the conventional finance, Islamic model will probably be facing instability, following the financial cycle. There has been a growing literature discussing credit cycle in mainstream perspective since 2008 global financial crash. However, it is quite rare to find study, in macro context, on credit cycles and the effectiveness of integrated Islamic commercial and social finance in achieving macroprudential objective: curtailing excessive credit. This study is designed to empirically examine the characteristics of cycles stemming from conventional and Islamic credit whether both have similar trend and also to investigate how the integrated Islamic commercial and social finance may be effective to hamper such cycles. By employing Hodrick-Presscot Filter, Markov Switching and Vector Error Correction Model, this study demonstrates that, in terms of cycle, Islamic model cycle has certain similarities with conventional counterpart since it functions under similar financial environment despite the fact that Islamic has less amplitude compared with conventional credit. Both credit and financing cycles tend to grow rapidly (excessive) several months before global financial crisis happened in 2008. This means that, in a dual banking system, credit and financing boom may precede financial crisis. Moreover, it is apparent also that the integrated Islamic finance is proven to be effective in curbing credit growth due to the effectiveness of both macroprudential instrument applied in banking sector and social finance in safeguarding financial stability. Keywords: Credit cycle, Macroprudential policy, Markov Switching, HP filter JEL Classification: E32, E51, G29

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9

King, Matt. "Is the Credit Cycle Dead?" CFA Institute Conference Proceedings Quarterly 24, no. 1 (March 2007): 45–54. http://dx.doi.org/10.2469/cp.v24.n1.4542.

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10

Emery, Dana M. "Credit Analysis throughout the Cycle." CFA Institute Conference Proceedings Quarterly 30, no. 2 (June 2013): 31–43. http://dx.doi.org/10.2469/cp.v30.n2.2.

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11

Gelain, Paolo, Kevin J. Lansing, and Gisle James Natvik. "Leaning Against the Credit Cycle." Journal of the European Economic Association 16, no. 5 (December 13, 2017): 1350–93. http://dx.doi.org/10.1093/jeea/jvx043.

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12

Criste, Adina, Iulia Lupu, and Radu Lupu. "Coherence and Entropy of Credit Cycles across the Euro Area Candidate Countries." Entropy 23, no. 9 (September 14, 2021): 1213. http://dx.doi.org/10.3390/e23091213.

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The pattern of financial cycles in the European Union has direct impacts on financial stability and economic sustainability in view of adoption of the euro. The purpose of the article is to identify the degree of coherence of credit cycles in the countries potentially seeking to adopt the euro with the credit cycle inside the Eurozone. We first estimate the credit cycles in the selected countries and in the euro area (at the aggregate level) and filter the series with the Hodrick–Prescott filter for the period 1999Q1–2020Q4. Based on these values, we compute the indicators that define the credit cycle similarity and synchronicity in the selected countries and a set of entropy measures (block entropy, entropy rate, Bayesian entropy) to show the high degree of heterogeneity, noting that the manifestation of the global financial crisis has changed the credit cycle patterns in some countries. Our novel approach provides analytical tools to cope with euro adoption decisions, showing how the coherence of credit cycles can be increased among European countries and how the national macroprudential policies can be better coordinated, especially in light of changes caused by the pandemic crisis.

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13

Altman, Edward I., and Brenda J. Kuehne. "Credit markets and bubbles: is the benign credit cycle over?" Economics and Business Review 2 (16), no. 3 (September 30, 2016): 20–31. http://dx.doi.org/10.18559/ebr.2016.3.3.

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14

López-Salido, David, Jeremy C. Stein, and Egon Zakrajšek. "Credit-Market Sentiment and the Business Cycle*." Quarterly Journal of Economics 132, no. 3 (May 2, 2017): 1373–426. http://dx.doi.org/10.1093/qje/qjx014.

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Abstract Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t − 2 is associated with a decline in economic activity in years t and t + 1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t − 2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this article suggests that investor sentiment in credit markets can be an important driver of economic fluctuations.

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15

Irawan, Denny, and Febrio Kacaribu. "TRI-CYCLES ANALYSIS ON BANK PERFORMANCE: PANEL VAR APPROACH." Buletin Ekonomi Moneter dan Perbankan 19, no. 4 (July 7, 2017): 403–42. http://dx.doi.org/10.21098/bemp.v19i4.694.

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The previous financial crisis has revealed the importance of risk in the financial and business cycle within the economy. This paper examines relationship among three cycles in the economy, namely (i) business cycle macro risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle macro risk and its consequence to the bank performance. We use Indonesian data for period of 2005q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by Abrigo and Love (2015). The result shows dynamic relationship between business cycle macro risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle macro risk.

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16

Gilchrist, Simon, and Egon Zakrajšek. "Credit Spreads and Business Cycle Fluctuations." American Economic Review 102, no. 4 (June 1, 2012): 1692–720. http://dx.doi.org/10.1257/aer.102.4.1692.

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Using micro-level data, we construct a credit spread index with considerable predictive power for future economic activity. We decompose the credit spread into a component that captures firm-specific information on expected defaults and a residual component–– the excess bond premium. Shocks to the excess bond premium that are orthogonal to the current state of the economy lead to declines in economic activity and asset prices. An increase in the excess bond premium appears to reflect a reduction in the risk-bearing capacity of the financial sector, which induces a contraction in the supply of credit and a deterioration in macroeconomic conditions.

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17

Rodano, Giacomo, Nicolas Serrano-Velarde, and Emanuele Tarantino. "Lending Standards over the Credit Cycle." Review of Financial Studies 31, no. 8 (April 24, 2018): 2943–82. http://dx.doi.org/10.1093/rfs/hhy023.

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18

Caja, Anisa, and Frédéric Planchet. "Modeling Cycle Dependence in Credit Insurance." Risks 2, no. 1 (March 14, 2014): 74–88. http://dx.doi.org/10.3390/risks2010074.

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19

Jin, Yi, and Zhixiong Zeng. "MONEY, CREDIT, AND BUSINESS CYCLE COMOVEMENT." Pacific Economic Review 14, no. 2 (April 21, 2009): 275–93. http://dx.doi.org/10.1111/j.1468-0106.2009.00443.x.

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20

Ielpo, Florian. "Equity, credit and the business cycle." Applied Financial Economics 22, no. 12 (February 9, 2012): 939–54. http://dx.doi.org/10.1080/09603107.2011.631891.

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21

Borsi, Mihály Tamás. "Fiscal multipliers across the credit cycle." Journal of Macroeconomics 56 (June 2018): 135–51. http://dx.doi.org/10.1016/j.jmacro.2018.01.004.

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22

Stein, Jeremy C. "Can Policy Tame the Credit Cycle?" IMF Economic Review 69, no. 1 (January 22, 2021): 5–22. http://dx.doi.org/10.1057/s41308-020-00125-1.

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23

Tatarici, Luminita. "Financial cycle. How does it look like in Romania?" Proceedings of the International Conference on Applied Statistics 1, no. 1 (October 1, 2019): 473–83. http://dx.doi.org/10.2478/icas-2019-0041.

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Abstract The paper aims to identify the main characteristics of the financial cycle for Romania using both the classical and growth cycle approaches. The turning point methodology represents the classical approach, while a band-pass filter is applied to capture the growth cycle. First, the paper assesses the significance of the medium-term cyclical component and finds that its importance increased since 2000s. The second purpose is to identify the relevant variables for the construction of a composite measure of the financial cycle. The results reveal that total credit and real estate prices are the best candidates. Regarding cycles’ characteristics, the classical approach shows that credit cycles tend last around 10 years, while the real estate cycles are longer and exhibit higher corrections during downturns.

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24

Scharnagl, Michael, and Martin Mandler. "Real and Financial Cycles in Euro Area Economies: Results from Wavelet Analysis." Jahrbücher für Nationalökonomie und Statistik 239, no. 5-6 (September 25, 2019): 895–916. http://dx.doi.org/10.1515/jbnst-2019-0035.

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Abstract We study the within-country dimension of financial cycles in the four largest euro area economies using tools from wavelet analysis. We focus on credit and house price cycles which are most commonly used to represent the financial cycle. With the exception of Germany, the variables contain important common cycles within each country close to the upper bound of business cycle length and beyond which can be interpreted as financial cycles. These cycles are closely linked to domestic cycles in real activity showing financial and real economic cycles as interconnected phenomena. For these common cycles, credit and house prices lag real GDP.

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25

Li, Tinghui, Junhao Zhong, and Mark Xu. "Does the Credit Cycle Have an Impact on Happiness?" International Journal of Environmental Research and Public Health 17, no. 1 (December 26, 2019): 183. http://dx.doi.org/10.3390/ijerph17010183.

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The 2008 international financial crisis triggered a heated discussion of the relationship between public health and the economic environment. We test the relationship between the credit cycle and happiness using the fixed effects model and explore the transmission channels between them by adding the moderating effect. The results show the following empirical regularities. First, the credit cycle has a negative correlation with happiness. This means that credit growth will reduce the overall happiness score in a country/region. Second, the transmission channels between the credit cycle and happiness are different during credit expansion and recession. Life expectancy and generosity can moderate the relationship between the credit cycle and happiness only during credit expansion. GDP per capita can moderate this relationship only during credit recession. Social support, freedom, and positive affect can moderate this relationship throughout the credit cycle. Third, the total impact of the credit cycle on happiness will become positive by the changes in the moderating effects. In general, we can improve subjective well-being if one of the following five conditions holds: (1) with the adequate support from the family and society, (2) with enough freedom, (3) with social generosity, (4) with a positive and optimistic outlook, and (5) with a high level of GDP per capita.

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26

Saini, Seema, Wasim Ahmad, and Stelios Bekiros. "Understanding the credit cycle and business cycle dynamics in India." International Review of Economics & Finance 76 (November 2021): 988–1006. http://dx.doi.org/10.1016/j.iref.2021.08.006.

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27

Podrugina, A. V. "Tightening Financial Regulation: The Impact on the Credit Cycle in the USA." World of new economy 12, no. 3 (June 3, 2019): 68–81. http://dx.doi.org/10.26794/2220-6469-2018-12-3-68-81.

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The credit cycle is one of the most important elements of the business cycle. Credit expansion after the crisis is one of the key ways of economic recovery. The tightening of financial regulation in response to the crisis of 2007–2008 largely slowed down the credit expansion phase and was reflected in an abnormally prolonged phase of credit contraction for the non-financial private sector. The normal course of the credit cycle was disrupted by the increased demands of Basel III and the reform of theUSAfinancial system. The credit cycle after the crisis of 2007–2008 differs from previous crises: the recovery of credit activity was slower; the volume of credit to the non-financial private sector has not recovered even now. The article presents a comparative analysis of the behaviour of credit after crises from the point of view of the duration of recovery. In this article, the author presents the results of the research of the nature of the incident called “the credit paralysis” based on Minsky’s hypothesis of financial instability and Crotty’s theory of the endogenous formation of credit standards. It is assumed that bank credit standards are set in accordance with the level of macroeconomic variables — the level of GDP, interest rates, the volume of loans taken. Using the vector autoregressive model, the author analyzed the change in credit activity in response to changes in credit standards, as well as the process of forming credit standards depending on macroeconomic indicators. Therefore, the author concluded that the excessive increase in credit standards due to the introduction of Basel III requirements in response to the crisis that violated the normal course of the credit cycle. Based on the author’s econometric study, the author built a stylized model of theUSAcredit cycle, taking into account the influence of specific factors of the crisis of 2007–2008: pre-crisis financial innovation and post-crisis tightening of financial regulation.

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28

Cholewiński, Jarosław. "The Phenomenon of Speculative Bubble in the Light of the Austrian Business Cycle Theory." Equilibrium 4, no. 1 (June 30, 2010): 51–63. http://dx.doi.org/10.12775/equil.2010.004.

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The article presents the modern interpretation of the Austrian business cycle theory and the look at the phenomenon of economic bubble through the lens of that theory. The aim of the article is to answer the question ‘What is the main cause of economic bubbles’. The author suggests that it is a depiction which integrates cyclical fluctuations induced by credit expansion with the phenomenon of speculative bubble. Capital-based macroeconomics proposed by Garrison can become a core of universal economic theorizing. The model presented by the author shows how credit expansion that decreases interest rate of credits below its natural level causes medium-run discoordination of production structure. Disruptions that lies in the strong fluctuations of capital goods during a cyclical episode can be understand as consecutive stages of speculative bubble. In the paper the author conducted a historical analysis of data to investigate whether the dramatic increase in house prices that occurred in the United States after the year 2000 could have been triggered by credit expansion. The author summarizes that such hypothesis can’t be rejected.

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29

Gross, Tal, Matthew J. Notowidigdo, and Jialan Wang. "The Marginal Propensity to Consume over the Business Cycle." American Economic Journal: Macroeconomics 12, no. 2 (April 1, 2020): 351–84. http://dx.doi.org/10.1257/mac.20160287.

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We estimate how the marginal propensity to consume (MPC) out of liquidity varies over the business cycle. Ten years after a Chapter 7 bankruptcy, the bankruptcy flag is removed from the filer’s credit report, generating an increase in credit score. In the year following flag removal, credit card limits increase by $778 and credit card balances increase by $290, implying an MPC of 0.37. Using cohorts of flag removals, we find that the MPC was 20 to 30 percent higher during the Great Recession, increased during the 2001 recession, and is positively correlated with the local unemployment rate. (JEL E21, E24, E32, G51)

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30

Lopez-Salido, David, Jeremy C. Stein, and Egon Zakrajsek. "Credit-Market Sentiment and the Business Cycle." Finance and Economics Discussion Series 2015, no. 028 (May 6, 2015): 1–38. http://dx.doi.org/10.17016/feds.2015.028.

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31

Egan, Sean J. "The Next Phase of the Credit Cycle." CFA Institute Conference Proceedings Quarterly 26, no. 1 (March 2009): 16–20. http://dx.doi.org/10.2469/cp.v26.n1.3.

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32

Kubin, Ingrid, Thomas O. Zörner, Laura Gardini, and Pasquale Commendatore. "A credit cycle model with market sentiments." Structural Change and Economic Dynamics 50 (September 2019): 159–74. http://dx.doi.org/10.1016/j.strueco.2019.06.006.

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33

Amromin, Gene, Neil Bhutta, and Benjamin J. Keys. "Refinancing, Monetary Policy, and the Credit Cycle." Annual Review of Financial Economics 12, no. 1 (November 1, 2020): 67–93. http://dx.doi.org/10.1146/annurev-financial-012720-120430.

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We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic.

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34

Chen, Xiaoshan, Alexandros Kontonikas, and Alberto Montagnoli. "Asset prices, credit and the business cycle." Economics Letters 117, no. 3 (December 2012): 857–61. http://dx.doi.org/10.1016/j.econlet.2012.08.040.

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35

Annicchiarico, Barbara, Silvia Surricchio, and Robert J. Waldmann. "A behavioral model of the credit cycle." Journal of Economic Behavior & Organization 166 (October 2019): 53–83. http://dx.doi.org/10.1016/j.jebo.2019.09.010.

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36

Hessou, Helyoth, and Van Son Lai. "Basel III capital buffers and Canadian credit unions lending: Impact of the credit cycle and the business cycle." International Review of Financial Analysis 57 (May 2018): 23–39. http://dx.doi.org/10.1016/j.irfa.2018.01.009.

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37

Herkenhoff, Kyle F. "The Impact of Consumer Credit Access on Unemployment." Review of Economic Studies 86, no. 6 (February 7, 2019): 2605–42. http://dx.doi.org/10.1093/restud/rdz006.

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Abstract Unemployed households’ access to unsecured revolving credit more than tripled over the last three decades. This article analyses how both cyclical fluctuations and trend increases in credit access impact the business cycle. The main quantitative result is that credit expansions and contractions have contributed to moderately deeper and more protracted recessions over the last 40 years. As more individuals obtained credit from 1977 to 2010, cyclical credit fluctuations affected a larger share of the population and became more important determinants of employment dynamics. Even though business cycles are more volatile, newborns strictly prefer to live in the economy with growing, but fluctuating, access to credit markets.

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38

Akinsola, Foluso Abioye, and Sylvanus Ikhide. "Is commercial bank lending in South Africa procyclical?" Journal of Financial Regulation and Compliance 26, no. 2 (May 14, 2018): 203–26. http://dx.doi.org/10.1108/jfrc-09-2016-0073.

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PurposeThis paper aims to examine the relationship between commercial bank lending and business cycle in South Africa. This paper attempts to know whether commercial bank lending in South Africa is procyclical.Design/methodology/approachThe model assumed that the lending behaviour is related to the business cycle. In this study, vector error correction model (VECM) is used to capture the relationship between bank lending and business cycle to accurately elicit the macroeconomic long-run relationship between business cycle and bank lending, as some banks might slow down bank lending due to some idiosyncratic factors that are not related to the downturn in the economy. This paper uses data from South African Reserve Bank for the period of 1990-2015 using VECM to understand the extent to which business cycle fluctuation can affect credit crunch in the financial system. The Johansen cointegration approach is used to ascertain whether there is indeed a long-run co-movement between credit growth and business cycle.FindingsResults from the VECM show that there are significant linkages among the variables, especially between credit to gross domestic product (GDP) and business cycle. The influence of business cycle is seen vividly after a period of four to five years, where business cycle explains 20 per cent of the variation in the credit to GDP. South African banks tend to change their lending behaviour during upturns and downturns. This result further confirms the assertion in theory that credit follows business cycle and can amplify credit crunch. The result shows that in the long run, fluctuations in the business cycle can influence the credit growth in South Africa.Research limitations/implicationsThe impulse analysis result shows that the impact of business cycle shock is very persistent and lasting. This also demonstrates that the shocks to the business cycle result have a persistent and long-lasting impact on credit. This study finds that commercial bank lending in South Africa is procyclical. It is suggested that the South African economy needs forward-looking policies that will mitigate the flow of credit to the real sector and at the same time ensure financial stability.Originality/valueMost research papers rarely distinguish between the demand side and supply side of credit procyclicality. This report is presented to develop an econometric model that will examine demand side procyclicality. This study adopts more realistic and novel methods that will help in explaining the relationship between bank lending and business cycle in South Africa, especially after the global financial crisis. This report is presented with a concise and detailed analysis and interpretation.

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39

Fieberg, Christian, Richard Lennart Mertens, and Thorsten Poddig. "The relevance of credit ratings over the business cycle." Journal of Risk Finance 17, no. 2 (March 21, 2016): 152–68. http://dx.doi.org/10.1108/jrf-08-2015-0079.

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Purpose Credit market models and the microstructure theory of the ratings market suggest that information provided by credit rating agencies becomes more relevant in recessions when agency costs are high and less relevant in expansions when agency costs are low. The purpose of this paper is to empirically test these hypotheses with regard to equity markets. Design/methodology/approach The authors use business cycle identification algorithms to map rating events (credit rating changes and watchlist inclusions) to business cycle phases and apply the event study methodology. The results are backed by cross-sectional regressions using a variety of control variables. Findings The authors find that the relevance of information provided by credit rating agencies for equity prices heavily depends on the level of agency costs. Furthermore, the authors detect a “flight-to-quality” during recessions in the speculative grade segment and a weakened relevance of rating events in expansions in the investment grade segment. Originality/value This paper is the first to empirically analyse how equity investors perceive credit rating changes and watchlist inclusions over the business cycle. In the empirical analysis, the authors use a large sample of about 25,000 rating events in all Organisation for Economic Co-operation and Development markets. The presented results underline that credit ratings address the agency problem in financial markets and can thus be regarded as useful for risk management or regulation.

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Bianchi, Javier. "Overborrowing and Systemic Externalities in the Business Cycle." American Economic Review 101, no. 7 (December 1, 2011): 3400–3426. http://dx.doi.org/10.1257/aer.101.7.3400.

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Credit constraints linking debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to overborrow. This externality arises because private agents fail to internalize the financial amplification effects of carrying a large amount of debt when credit constraints bind. We conduct a quantitative analysis of this externality in a two-sector dynamic stochastic general equilibrium (DSGE) model of a small open economy calibrated to emerging markets. Raising the cost of borrowing during tranquil times restores constrained efficiency and significantly reduces the incidence and severity of financial crises. JEL: E13, E32, E44, F41, G01

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Rötheli, Tobias F. "Oligopolistic Banks, Bounded Rationality, and the Credit Cycle." Economics Research International 2012 (July 19, 2012): 1–4. http://dx.doi.org/10.1155/2012/961316.

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This paper studies how boundedly rational default expectations affect the credit cycle. I propose a simple model of oligopolistic bank competition which serves to compare situations with just a portion of boundedly rational banks to situations where either all banks are rational or all banks are boundedly rational. When all banks are boundedly rational, the credit cycle is most amplified relative to the situation where all banks are rational. However, the amplifying effect of bounded rationality on the side of banks largely remains even when only a portion of banks are boundedly rational. Hence, the interest rate decisions of a minority of boundedly rational banks induce the more rational competitors to aggravate the credit cycle.

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Mouatt, Simon. "Credit cycles: freewheeling, driving or driven?" International Journal of Social Economics 42, no. 7 (July 13, 2015): 629–43. http://dx.doi.org/10.1108/ijse-01-2014-0002.

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Purpose – The discourse on credit cycles has been reinvigorated following the global crisis. The purpose of this paper is to contrast the positions of mainstream, Marxist, Austrian and post-Keynesian (PK) schools of thought on these matters. It is posited that most notions underplay the significance of real economy factors in shaping the fluctuations of credit levels and relations. It is argued these ideas are best illustrated by Marx (as interpreted by the Temporal Single System Interpretation) and tendency for the profit rate to fall with accumulation. Empirical evidence on the UK profit rate is provided as supporting evidence. Design/methodology/approach – The paper explores the theoretical work on credit and business cycles from the relevant schools of thought and contrasts them. The aim is to consider which approach best describes the reality. Empirical work on the profit rate provides supporting evidence. Findings – It is argued that the mainstream view of monetary neutrality is an insufficient explanation of the financial reality associated with credit and business cycles. Instead, it is posited that the PK approach, which emphasizes productive and financial factors, is more preferable. This contrasts with the usual singular financialization commentary that is used to describe the financial crisis and real economy stagnation that followed. It is argued that Marx’s notion of falling profit and its ramifications best explain the reality of both the credit and business cycle. This is supported by the evidence. Research limitations/implications – It is problematic to calculate a Marxian rate of profit given the lack of suitable reported statistics. The research illustrates the significance of productive factors, especially the tendency for the profit rate to fall, in driving business cycles. There are, therefore, implications for government fiscal/monetary/industrial policies to reflect these factors when seeking to influence the business cycle. Practical implications – Policies that are designed to target levels of profitability are likely to be beneficial for capitalist sustainability. Social implications – The focus on profitability in the paper informs individuals working in business organizations of some of the imperatives facing corporations in a modern competitive environment. Originality/value – Whether financial factors drive the business cycle, or are themselves driven by it, is an important question given that policy prescriptions will differ depending on the answer. The recent financialization commentary, for instance, suggests that better regulation or reform of the financial sector will preclude unstable business cycles. The paper argues, in contrast, that the cause of the credit instability is rooted in production (following Marx) and that, therefore, a more production-focused policy response is required whilst recognizing the instabilities of the credit system. This latter point has a measure of originality in the current discourse.

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Canto-Cuevas, Francisco-Javier, María-José Palacín-Sánchez, and Filippo Di Pietro. "Trade Credit as a Sustainable Resource during an SME’s Life Cycle." Sustainability 11, no. 3 (January 28, 2019): 670. http://dx.doi.org/10.3390/su11030670.

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Inadequate access to finance for small and medium-sized enterprises (SMEs) can present a major impediment to SMEs’ contribution towards driving sustainable economic growth. The aim of this article is to investigate the role of life cycle on SME financing decisions while focusing on trade credit. To this end, we study whether trade credit and its firm-factor determinants differ depending on the stage of life cycle of the SMEs. For the empirical analysis, a sample is employed of manufacturing SMEs operating in 12 European Union countries over the period 2008–2014 and a panel data model with fixed effects is applied. We find that the business life cycle influences trade credit and that this influence is stronger in young firms, although this relation is non-linear across the firms’ life cycle. We further show that the impact of firm-factor determinants on trade credit differs across the business life cycle in terms of magnitude levels. Our results demonstrate that the business life cycle matters when analysing trade credit, and it should therefore be considered when managers and policymakers strive to solve the financial problems of an SME and to consequently incorporate the SME into the sustainable economy.

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Bernstein, James, Leroi Raputsoana, and Eric Schaling. "Credit procyclicality and financial regulation in South Africa." South African Journal of Economic and Management Sciences 19, no. 4 (November 25, 2016): 467–78. http://dx.doi.org/10.4102/sajems.v19i4.1244.

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This study assesses the behaviour of credit extension over the business cycle in South Africa for the period 2000 to 2012. This is motivated by the proposal of the Basel Committee on Banking Supervision to look at credit extension over the business cycle as a reference guide for implementing countercyclical capital buffers for financial institutions. The study finds that credit extension in South increases during the trough phase, while the relationship between credit extension and the business cycle becomes insignificant during the peak phase. The study also finds that credit extension decreases during the expansion phase, while it increases during the contraction phase. Thus we do not find any evidence of procyclical behaviour of credit extension in South Africa, and the latter should therefore be used with caution and not as a mechanical rule based common reference guide for countercyclical capital buffers for financial institutions.

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Gao, Ge, Xinmin Liu, Huijun Sun, Jianjun Wu, Haiqing Liu, Wei (Walker) Wang, Zhen Wang, Tao Wang, and Haoming Du. "Marginal Cost Pricing Analysis on Tradable Credits in Traffic Engineering." Mathematical Problems in Engineering 2019 (January 13, 2019): 1–10. http://dx.doi.org/10.1155/2019/8461395.

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This paper tries to explore a more applicable tradable credit scheme for managing network mobility from the angle of marginal cost pricing. The classic mathematical model-Cobweb model is used to analyze the stability of credit price. It is found that credit price is not always convergent in the trading market. It will show convergence, divergence, two-period simple behaviors, and even more complex dynamic behaviors, such as cycle movements and chaos. Considering the applicability and public goods character of tradable credits scheme, one public pricing mechanism- marginal cost pricing is explored. Analytical investigations and the numerical simulation of a particular case with linear demand and supply indicate that marginal cost pricing is an effective, sustainable, and socially feasible manner in managing the demand for car travel.

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Rötheli, Tobias F. "Boundedly rational banks’ contribution to the credit cycle." Journal of Socio-Economics 41, no. 5 (October 2012): 730–37. http://dx.doi.org/10.1016/j.socec.2012.07.005.

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Guha, Debashis, and Lorene Hiris. "The aggregate credit spread and the business cycle." International Review of Financial Analysis 11, no. 2 (January 2002): 219–27. http://dx.doi.org/10.1016/s1057-5219(02)00075-3.

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Zhang, Xing, Fengchao Li, Zhen Li, and Yingying Xu. "Macroprudential Policy, Credit Cycle, and Bank Risk-Taking." Sustainability 10, no. 10 (October 10, 2018): 3620. http://dx.doi.org/10.3390/su10103620.

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This paper constructs a theoretical model to analyze the effect of macroprudential policies (MPPs) on bank risk-taking. We collect a data set of 231 commercial banks in China to empirically test whether macroprudential tools, including countercyclical capital buffers, reserve requirements, and caps on loan-to-value, can affect bank risk-taking behaviors by using the dynamic unbalanced panel system generalized method of moment (SYS-GMM). The results provide further evidence on the important role of MPPs in maintaining financial stability, which helps mitigate financial system vulnerabilities. Bank risk-taking will be decreased with the strengthening of macroprudential supervision, which greatly benefits the resilience and the sustainability of bank sector. Moreover, the credit cycle has a magnifying role on MPPs’ effect on bank risk-taking. Reducing risks in bank loans requires a further slowing of credit growth, which is necessary to ensure sustainable growth in a bank system, or more ambitiously, to smooth financial booms and busts. The results survive robustness checks under alternative estimation methods and alternative proxies of bank risk-taking and MPPs.

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Ielpo, Florian. "Forecasting the European Credit Cycle Using Macroeconomic Variables." Journal of Forecasting 32, no. 3 (December 5, 2011): 226–46. http://dx.doi.org/10.1002/for.1266.

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Bahadir, Berrak, and Neven Valev. "INSTITUTIONS, HOUSEHOLD CREDIT COMPOSITION, AND THE BUSINESS CYCLE." Economic Inquiry 58, no. 3 (March 22, 2020): 1401–13. http://dx.doi.org/10.1111/ecin.12885.

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