Sector-specific shocks are a major driver of credit cycles in both the bank and non-bank sectors, a working paper published by the Bank for International Settlements finds.

Authors C Bora Durdu and Molin Zhong say there had been a gap in the literature – there was little study of what drives non-bank credit cycles, interactions with bank credit and how fluctuations in credit spread to the wider economy.

The authors study the issue in a dynamic stochastic general equilibrium framework based on