That said, combining credit and property prices appears to be the most parsimonious way to capture the core features of the link between the financial cycle, the business cycle and financial crises (see below). Analytically, this is the smallest set of variables needed to replicate adequately the mutually reinforcing interaction between financing constraints (credit) and perceptions of value and risks (property prices). Empirically, there is a growing literature documenting the information content of credit, as reviewed by Dell’Arricia et al (2012), and property prices (eg, IMF (2003)) taken individually for business fluctuations and systemic crises with serious.
