The Consumption Effects of the 2007-2008 Financial Crisis: Evidence from Household-Level Data
42 Pages Posted: 14 Jul 2015
Date Written: June 30, 2015
Did the financial crisis spread from distressed banks to households through a contraction of the credit supply? We study this question with a dataset that contains observations on all accounts in Danish banks as well as comprehensive information about account holders and banks. We show that banks exposed to the financial crisis reduced their credit supply significantly and that their customers reduced both borrowing and consumption relative to customers in non-exposed banks. Our results further suggest that heterogeneous costs of switching banks at the level of customers may explain why they did not fully compensate with credit from other sources when their banks tightened credit.
Keywords: Credit supply, financial crisis, household consumption, switching costs
JEL Classification: D10, G21, E44, E50
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