Understanding Credit Demand: Exploring the Impact of Leverage and Return on Borrowing

Yudha, Graha and Dahlan, Rolan and Zulkarnain, Ismail and Nugraha, Achmad (2025): Understanding Credit Demand: Exploring the Impact of Leverage and Return on Borrowing. Forthcoming in:

Abstract

This study presents a conceptual framework for analyzing the relationship between firm returns and credit demand. By examining the conditional distributions of return on borrowing and leverage, the framework investigates how changes in interest rates and the maximum leverage provision impact credit demand. The study emphasizes the role of the mean and standard deviation of these distributions and introduces the concept of elasticity to quantify the responsiveness of credit demand. The findings provide valuable insights for policymakers in understanding the dynamics of credit demand and formulating effective economic policies. The framework offers a useful tool to assess the implications of interest rate and leverage provision changes on credit demand and support sustainable economic growth in the credit market.

• Item Type: MPRA Paper
• Language: English
• Keywords: credit demand, interest rate policy, distribution of leverage, economic policy.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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