Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/229011 
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2397
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study the effects of credit over the business cycle, distinguishing between expansions and contractions. We find that there is a growth and risk trade-off in the pace of credit growth over the business cycle. While rapid credit growth tends to be followed by deeper recessions, we also find that credit growth has a positive impact on the duration of expansions. This poses a trade-off for the policymaker: Limiting the buildup of financial risk to avoid a deep recession can negatively affect the cumulation of economic growth during the expansion. We show that intermediate levels of credit growth maximize long-term growth while limiting volatility. Macroprudential policies should be used to manage this growth and risk trade-off, striking a balance between allowing expansions to last longer and avoiding deep recessions.
Subjects: 
cycles
macroprudential policies
credit growth
nancial crisis
GDP-at-risk
JEL: 
C22
E32
E61
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4040-5
Document Type: 
Working Paper

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