Are Credit Crunches Supply or Demand Shocks?

20 Pages Posted: 27 Jun 2013

Date Written: June 26, 2013

Abstract

This paper provides new insights into the relationship between the supply of credit and the macroeconomy. We present evidence that credit shocks constitute shocks to aggregate supply in that they have a permanent effect on output and cause inflation to rise in the short term. Our results also suggest that the effects on aggregate supply have grown stronger in recent decades.

Keywords: Financial crisis, Potential output, Inflation, Credit crunch

JEL Classification: E31, E32

Suggested Citation

Bijapur, Mohan, Are Credit Crunches Supply or Demand Shocks? (June 26, 2013). Available at SSRN: https://ssrn.com/abstract=2285634 or http://dx.doi.org/10.2139/ssrn.2285634

Mohan Bijapur (Contact Author)

London School of Economics ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/bijapurm/

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