How do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s

Atif Mian, Amir Sufi and Emil Verner

No 23802, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the business cycle consequences of credit supply expansion in the U.S. The 1980's credit boom resulted in stronger credit expansion in more deregulated states, and these states experience a more amplified business cycle. A new test shows that amplification is primarily driven by the local demand rather than the production capacity channel. States with greater exposure to credit expansion experience larger increases in household debt, the relative price of non-tradable goods, nominal wages, and non-tradable employment. Yet there is no change in tradable sector employment. Eventually states with greater exposure to credit expansion experience a significantly deeper recession.

JEL-codes: E3 E32 E44 E51 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-ban and nep-mac
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