Journal Article

Gross Credit Flows

Giovanni Dell'Ariccia and Pietro Garibaldi

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 72, issue 3, pages 665-685
Published in print July 2005 | ISSN: 0034-6527
Published online July 2005 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2005.00347.x
Gross Credit Flows

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  • Prices, Business Fluctuations, and Cycles
  • Banking
  • Monetary Policy, Central Banking, and the Supply of Money and Credit

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The paper estimates gross credit flows for the U.S. banking system between 1979 and 1999 and shows that sizable gross flows coexist at any phase of the cycle, even within narrowly defined loan categories, bank size categories, and regional units. To investigate the macroeconomic dimensions of gross credit flows, the paper studies the cyclical behaviour of aggregate credit flows and documents three key cyclical facts. First, excess credit reallocation is countercyclical: for any given rate of change of net credit, gross flows are larger in a recession than in a boom. Second, gross credit flows are highly volatile, with a cyclical volatility which appears more than an order of magnitude larger than GDP volatility. Third, credit contraction is more volatile than credit expansion. Furthermore, the behaviour of gross flows over the 1991 recession suggests that persistent and historically high credit contraction is a key feature of the relatively mild cyclical downturn. The results lend some support to aggregate models that emphasize the asymmetric behaviour of credit expansion and credit contractions.

Keywords: E32; E51; G21

Journal Article.  8681 words.  Illustrated.

Subjects: Prices, Business Fluctuations, and Cycles ; Banking ; Monetary Policy, Central Banking, and the Supply of Money and Credit

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