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Boom-bust Cycles Revisited: The Role of Credit Supply
- Author Hyo Sang Kim, Sangyup Choi, Da Young Yang and Yuri Kim
- Series22-04
- Date2022-02-03
This study investigates the impacts of credit supply on economic growth and financial crisis. Excess credit supply can make the economy and financial markets more vulnerable. While credit supply can drive economic growth by reallocating resources, it can also make the economy and financial markets more fragile. Asset prices sharply fall when deleveraging occurs in the case of a negative shock to the financial or real sector in a system where credit is excessively supplied. Furthermore, economic activity might be substantially reduced, extending the length and breadth of the recession.
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