Abstract: Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans.
Abstract: An unprecedented credit boom that began in the early 2000s was a central cause behind the global financial crisis. Both a housing boom and a relaxation of lending constraints that unlocked an aggressive channeling of funds to the mortgage market (the financial intermediary channel) were key determinants of the credit boom. However, little is known about the relative roles played by each factor. This paper provides a novel empirical strategy to shed light on this issue. Building on two natural experiments identified in the literature, I show that both channels played a significant role in amplifying the rise in credit. In the preferred specification, the housing channel accounts for 51% of the observed amplification. Both the amount of amplification and the proportion explained by the housing channel are larger (66%) in areas with more inelastic land supply. Regions with very elastic land supply still display significant regional credit multipliers thanks to the financial intermediary channel, which accounts for 71% of the effects. Thus, both channels are essential to understand the drastic and geographically pervasive growth of credit during this episode.
Abstract: We construct a country-level indicator capturing the extent to which aggregate bank credit growth originates from banks with a relatively riskier profile, which we label the Riskiness of Credit Origins (RCO). Using bank-level data from 42 countries over more than two decades, we document that RCO variations over time are a feature of the credit cycle. RCO also robustly predicts downside risks to GDP growth even after controlling for aggregate bank credit growth and financial conditions, among other determinants. RCO’s explanatory power comes from its relationship with asset quality, investor and banking sector sentiment, as well as future banking sector resilience. Our findings underscore the importance of bank heterogeneity for theories of the credit cycle and financial stability policy.
Abstract: This paper studies the mediating impact of the maturity of public debt in the transmission of monetary policy shocks to economic activity. A longer debt maturity attenuates greatly the effect of monetary policy: going from the average historical duration of US debt to very short term debt doubles the impact of a rise of the policy rate on output. A similar result holds in UK data. Using data on corporate debt, spreads, investment, and fiscal variables, I show that these effects can be traced back to a quantitatively important financing channel. A model featuring an interaction between an empirically estimated primary market friction and a standard financial accelerator is able to account for these facts.
