Aggregate Implications of Credit Relationship Flows: A Tale of Two Margins

Abstract

This paper studies the aggregate properties of credit relationship flows within the commercial loan market in France from 1998 through 2017. Using detailed bank-firm level data, we derive a novel decomposition for credit dynamics and show that banks actively adjust their lending along both extensive and intensive margins. We document that gross credit relationship flows (i) are volatile and pervasive throughout the cycle, and (ii) account for up to 46% of the cyclical and 90% of the long-run aggregate bank credit variations. We also highlight the distinctive features associated with the extensive margin channel of monetary policy.