Andrew Haldane draws on a range of new evidence to state that credit cycles are clearly identifiable and regular phenomena across countries and through time, differing in frequency and scale to business cycles. He notes that in many cases financial crises are preceded by a credit boom, which provides ".relatively concrete evidence of the credit cycle having real and damaging effects on output". He explains that credit cycles can arise as a result of co-ordination or collective action failures among lenders, with firms taking decisions that are individually rational but collectively sub-optimal. It is important to understand these frictions and how they can be solved in order to help shape new macroprudential frameworks, including the creation of new macroprudential committees, like the Financial Policy Committee.
Published on
20 November 2010
Press release