In this case, similarly to credit supply, we also use the lagged value of Ci but in this case it is intended to capture habit persistence in credit demand. Admittedly, in this case the reverse causality issue cannot be fully eliminated. YDi, IDi and IvDi are activity variables which seek to reflect the effect on demand for external finance of a general expansion of business activity and/or investment activity. The prior is for a strong positive association; a weak statistical association between the dependent variable and these activity variables would suggest the presence of distorted.
