Determinants of credit to households: An approach using the life-cycle model

•We develop and simulate a life-cycle model with individual income uncertainty in order to analyze the determinants of credit to households.•The household credit to GDP ratio depends on the interest rate spread, individual income uncertainty, and individual income persistence.•We provide empirical evidence on the basis of panel data from 36 countries.

This paper applies a life-cycle model with individual income uncertainty in order to investigate the determinants of credit to households. We show that the household credit to GDP ratio depends on the lending-deposit interest rate spread, individual income uncertainty, and individual income persistence. We subsequently provide empirical evidence for the prediction of a theoretical model on the basis of data from OECD and EU countries.