Volume 25 , Issue 3 , PP: 132-143, 2025 | Cite this article as | XML | Html | PDF | Full Length Article
Khayrilla Kurbonov 1 *
Doi: https://doi.org/10.54216/IJNS.250313
The cyclical nature of credit is a pivotal component of the broader business cycle, with credit expansion serving as a crucial mechanism for economic resurgence post-crisis. This paper delves into the ramifications of stringent financial regulations implemented in the wake of the 2007–2008 financial crisis, which notably decelerated the credit expansion phase, culminating in an anomalously extended period of credit contraction within the non-financial private sector. From a Neutrosophic Science perspective, this study posits that the typical progression of the credit cycle was significantly altered due to the heightened requirements under Basel III and the overhaul of the United States financial system. Distinct from prior crises, the post-2007–2008 period witnessed a more languid recuperation in credit activity, with the credit volume to the non-financial private sector yet to attain pre-crisis levels. This article offers a comparative analysis, scrutinizing the temporal dynamics of credit recovery following various crises. Drawing on Minsky’s financial instability hypothesis, Crotty’s theory of endogenous credit standard formation, and the Neutrosophic Science framework, the research investigates the phenomenon termed "credit paralysis." It hypothesizes that banking credit standards are intrinsically linked to macroeconomic variables such as GDP levels, interest rates, and loan volumes. Employing a vector autoregressive model, the study examines the alterations in credit activity vis-à-vis shifts in credit standards and explores the genesis of these standards in relation to macroeconomic indicators. The analysis leads to the conclusion that the augmented credit standards, necessitated by Basel III's implementation in crisis response, disrupted the normal trajectory of the credit cycle. The research culminates in the development of a stylized model of the U.S. credit cycle, which incorporates specific factors from the 2007–2008 crisis, including pre-crisis financial innovations, the subsequent intensification of financial regulations, and the principles of Neutrosophic Science.
Financial Crisis, Credit Paralysis, Financial Instability Hypothesis, Financial Regulation, Business Cycle, Credit Cycle, Credit Standards, Neutrosophic Science
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