Credit cycles, lending shocks, and the business cycle

Key Points

• Lending shocks contribute significantly to the fluctuations observed in credit cycles, leading to macroeconomic instability.
• Evidence indicates that periods of rapid credit growth are often followed by downturns, resulting in severe economic consequences.
• Observational analysis across multiple economies highlights the interplay between credit cycles and overall business performance.
• Understanding credit cycles may enable better policy responses to mitigate economic downturns and enhance financial stability.