An Empirical Study of the Indicators of Credit Cycle

How could we describe cyclical changes in the economy? There are two common ways of doing it. First one is business cycle which describes cyclical changes through the real sector and another one is credit cycle which describes these changes through the financial sector. Credit cycle is the rise and fall in the household and government debt. It also can be divided in four phases which are expansion, downturn, repair and recovery. These phases are closely interact with phases of business cycle. Credit cycle describes how inability of meeting financial obligations results to deflation which in turn through several mechanisms leads to reduction in real income and production, which turns into depression. Therefore, policies which serves to restrain the effects of deflation and boost output should be undertaken. Thus, as we can see, in order to predict when the downturn occurs and prevent or at least minimise its negative effects it is important to study the indicators of credit cycle. One of the common indicators of credit cycle is spread between 10-year treasury constant maturity and 3-month treasury constant maturity which will be discussed in this paper. However, in this work the main attention will be paid for number of conceptions as the indicator of credit cycle.