How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels

By Atif R. Mian, Amir Sufi, Emil Verner. Journal of Finance, 2020

113 citations recorded by the source corpus.

Credit supply expansion can affect an economy by increasing productive capacity or by boosting household demand. This study develops an empirical test to determine whether the household demand channel of credit supply expansion is present, and it implements the test using both a natural experiment in the United States in the 1980s based on banking deregulation and an international panel of 56 countries over the last several decades. Consistent with the importance of the household demand channel, credit supply expansion boosts non-tradable sector employment and the price of non-tradable goods, with limited effects on tradable sector employment. Such credit expansions amplify the business cycle, leading to more severe recessions.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/703dab945fb65d9f7980f3323b351943738b7de5