The Consumption Effects of the 2007-2008 Financial Crisis: Evidence from Household-Level Data
43 Pages Posted: 11 Dec 2015
Date Written: November 16, 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 individual 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. The credit supply channel can explain roughly one third of the decrease in aggregate private consumption observed in Denmark between 2007 and 2009.
Keywords: relationship banking, financial crisis, household consumption, household credit
JEL Classification: D120
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