How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels |
| |
| Authors: | ATIF MIAN AMIR SUFI EMIL VERNER |
| |
| Institution: | 1. Atif Mian is with Princeton University and NBER. Amir Sufi is with the University of Chicago Booth School of Business and NBER. Emil Verner is with MIT Sloan. This research was supported by funding from the Washington Center for Equitable Growth, the Julis Rabinowitz Center for Public Policy and Finance at Princeton, and the Initiative on Global Markets at Chicago Booth. Sebastian Hanson, Bianca He, Hongbum Lee, Oliver Giesecke, and Seongjin Park provided excellent research assistance. We thank Alan Blinder, Jesus Fernandez-Villaverde, Itay Goldstein, Guido Lorenzoni, Philip Strahan, the Editor, an Associate Editor, two anonymous referees, and seminar participants at Georgetown University, Columbia University, University College London, Imperial College, Princeton University, the University of Chicago, Danmarks Nationalbank, the University of Maryland, and the NBER Summer Institute for helpful comments. A previous version of this study was called: “How do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s.” We have read The Journal of Finance's disclosure policy and have no conflicts of interest to 2. disclose. |
| |
| Abstract: | Credit supply expansion can affect an economy by increasing productive capacity or by boosting household demand. In this study, we develop a test to determine if the household demand channel is present, and we implement the test using both a natural experiment in the United States in the 1980s and an international panel of 56 countries over the last several decades. Consistent with the importance of the household demand channel, we find that credit supply expansion boosts nontradable sector employment and the price of nontradable goods, with limited effects on tradable sector employment. Such credit expansions amplify the business cycle and lead to more severe recessions. |
| |
| Keywords: | |
|
|
