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

Atif R. Mian, Amir Sufi

NBER Working Paper No. 24322
Issued in February 2018
NBER Program(s):Asset Pricing Program, Corporate Finance Program, Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, The Monetary Economics Program

Every major financial crisis leaves its unique footprint on economic thought. The early banking crises taught us the importance of financial sector liquidity and the lender of last resort. The Great Depression highlighted the devastating effects of bank failures and the need for counter-cyclical fiscal and monetary policy. The Great Recession has brought to the surface the importance of credit-driven business cycles that operate through household demand. We discuss empirical evidence accumulated over the last decade supporting this view, and we also describe accompanying theoretical work that helps define these concepts.

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Document Object Identifier (DOI): 10.3386/w24322

Published: Atif Mian & Amir Sufi, 2018. "Finance and Business Cycles: The Credit-Driven Household Demand Channel," Journal of Economic Perspectives, vol 32(3), pages 31-58.

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