Household and corporate credit do not activate the same macroeconomic mechanisms: one supports aggregate demand, the other conditions productive capacity. Aggregating both masks divergent dynamics with different implications for potential growth.
Financial leverage amplifies returns during expansion but produces non-linear effects during reversals. Forced deleveraging generates feedback loops that turn modest shocks into systemic stress.
Bank intermediation amplifies credit cycles asymmetrically: tightening in stress phases unfolds two to three times faster than easing in recovery phases. Capital ratios and risk models attenuate but do not eliminate this procyclicality.
Real estate combines long maturities, high household leverage and supply rigidities. This configuration makes property prices particularly sensitive to financing conditions and amplifies credit-cycle dynamics.
Credit availability, leverage and liquidity shape asset prices well beyond fundamentals. The procyclical loop linking financing conditions to valuations amplifies both expansion and correction phases.
Outstanding credit can keep growing even as activity decelerates. The stock-flow distinction explains the lag between new credit production and the existing balance, and why focusing on the stock alone misleads cyclical diagnostics.
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