Are Credit Crunches Supply or Demand Shocks?
20 Pages Posted: 27 Jun 2013
Date Written: June 26, 2013
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: Suggested Citation