The Effects of Changes in Local Bank Health on Household Consumption

Daniel Cooper and Joe Peek

The Review of Economics and Statistics, 2021, vol. 103, issue 4, 711-724

Abstract: This study investigates the relationship between credit availability and household consumption using a novel approach to separate credit demand and supply. We find that a deterioration in local-bank health reduces household consumption, with the strongest effects occurring for households that are more likely to need credit—especially those experiencing a negative income shock and having limited liquid assets. The main contributions of the study are the use of an arguably exogenous measure of local-bank health and multifaceted indicators of constrained households. Our findings contribute to the discussion of the linkages between the financial sector and real economic activity.

Date: 2021
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https://doi.org/10.1162/rest_a_00914
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Working Paper: The effects of changes in local-bank health on household consumption (2019)
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