Finance and Business Cycles: The Credit-Driven Household Demand Channel

36 Pages Posted: 25 Feb 2018 Last revised: 13 May 2018

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2018

Abstract

What is the role of the financial sector in explaining business cycles? This question is as old as the field of macroeconomics, and an extensive body of research conducted since the Global Financial Crisis of 2008 has offered new answers. The specific idea put forward in this article is that expansions in credit supply, operating primarily through household demand, have been an important driver of business cycles. We call this the credit-driven household demand channel. While this channel helps explain the recent global recession, it also describes economic cycles in many countries over the past 40 years.

Keywords: Great Recession, Household Debt, Credit Supply, Financial Crisis, Economic Fluctuations, Business Cycles

JEL Classification: D12, E2, E3, G2

Suggested Citation

Mian, Atif R. and Sufi, Amir, Finance and Business Cycles: The Credit-Driven Household Demand Channel (May 8, 2018). Available at SSRN: https://ssrn.com/abstract=3124001 or http://dx.doi.org/10.2139/ssrn.3124001

Atif R. 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

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