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The credit cycle and the business cycle in Canada and the U.S.: Two solitudes?

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Abstract

Recent events highlight the importance of understanding the relationship between credit availability and real economic activity. This paper estimates macroeconomic models for Canada to investigate the relationship between changes in non-price lending standards, business loans and output. We ask whether macroeconomic and financial market conditions in the U.S. affect Canadian macroeconomic and financial conditions. The answer seems to be less so than previous evidence suggests. Real time data are also found to have a significant impact on the results. The U.S. and Canada may indeed be likened to ‘two solitudes’ insofar as the impact of credit conditions is concerned. Differences in the quality of banking standards and supervision of financial institutions, as well differences in the effectiveness of monetary policies in the two countries may partially explain the results.

Suggested Citation

  • Pierre L. Siklos, Brady Lavender, 2015. "The credit cycle and the business cycle in Canada and the U.S.: Two solitudes?," LCERPA Working Papers 0085, Laurier Centre for Economic Research and Policy Analysis, revised 01 Feb 2015.
    • Handle: RePEc:wlu:lcerpa:0085
    Note: LCERPA Working Paper No. 2015-3
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    Cited by:

    1. Filardo, Andrew J. & Siklos, Pierre L., 2020. "The cross-border credit channel and lending standards surveys," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
    2. repec:zbw:bofitp:2015_002 is not listed on IDEAS
    3. Pierre L. Siklos, 2020. "Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?," IMES Discussion Paper Series 20-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Pang, Ke & Siklos, Pierre L., 2016. "Macroeconomic consequences of the real-financial nexus: Imbalances and spillovers between China and the U.S," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 195-212.
    5. Pang, Ke & Siklos, Pierre L., 2016. "Macroeconomic consequences of the real-financial nexus: Imbalances and spillovers between China and the U.S," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 195-212.

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    More about this item

    Keywords

    macro-financial linkages; credit standards; Loan Officer Survey;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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