How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels
Name
SSRN-id2971086.pdf
Description
Submitted version
Size
2.29 MB
Format
Adobe PDF
Checksum (MD5)
3b1a4308185aefd1453469142d2a5362
Author(s)
Verner, Emil
Date Issued
April 2020
Journal
The Journal of Finance
Publisher
Wiley
Citation
Mian, Atif et al. “How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels.” The Journal of Finance, 75, 2 (April 2020): 949-994 © 2020 The Author(s)
Version
Original manuscript
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1111/JOFI.12869
