Bendheim Center For Finance
26 Prospect Avenue
Princeton, NJ 08540
NBER Working Papers and Publications
|September 2017||How do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s|
with Atif Mian, Amir Sufi: w23802
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.
|September 2015||Household Debt and Business Cycles Worldwide|
with Atif R. Mian, Amir Sufi: w21581
An increase in the household debt to GDP ratio in the medium run predicts lower subsequent GDP growth, higher unemployment, and negative growth forecasting errors in a panel of 30 countries from 1960 to 2012. Consistent with the “credit supply hypothesis,” we show that low mortgage spreads predict an increase in the household debt to GDP ratio and a decline in subsequent GDP growth when used as an instrument. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries that face stricter monetary policy constraints as measured by a less flexible exchange rate regime, proximity to the zero lower bound, or more external borrowing. A rise in the household debt to GDP ratio is contemporaneously associated with a consumption boom follo...