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How Do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s

60 Pages Posted: 20 May 2017 Last revised: 24 Oct 2017

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Emil Verner

Princeton University - Department of Economics

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Date Written: September 24, 2017

Abstract

We study the business cycle consequences of credit supply expansion in the U.S. The 1980's credit boom resulted in stronger credit expansion in more deregulated states, and these states experience a more amplified business cycle. A new test shows that amplification is primarily driven by the local demand rather than the production capacity channel. States with greater exposure to credit expansion experience larger increases in household debt, the relative price of non-tradable goods, nominal wages, and non-tradable employment. Yet there is no change in tradable sector employment. Eventually states with greater exposure to credit expansion experience a significantly deeper recession.

Keywords: credit supply, deregulation, banking, productivity

Suggested Citation

Mian, Atif R. and Sufi, Amir and Verner, Emil, How Do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s (September 24, 2017). Available at SSRN: https://ssrn.com/abstract=2971086 or http://dx.doi.org/10.2139/ssrn.2971086

Atif Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emil Verner

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

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