Working Paper: NBER ID: w25187
Authors: Kyle F. Herkenhoff
Abstract: Unemployed households' access to unsecured revolving credit more than tripled over the last three decades. This paper analyzes how both cyclical fluctuations and trend increases in credit access impact the business cycle. The main quantitative result is that credit expansions and contractions have contributed to moderately deeper and more protracted recessions over the last 40 years. As more individuals obtained credit from 1977 to 2010, cyclical credit fluctuations affected a larger share of the population and became more important determinants of employment dynamics. Even though business cycles are more volatile, newborns strictly prefer to live in the economy with growing, but fluctuating, access to credit markets.
Keywords: Consumer Credit; Unemployment; Business Cycle; Credit Access
JEL Codes: E24; J01; J24; J6; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit access (G21) | unemployment dynamics (J64) |
| credit expansions (E51) | deeper and more protracted recessions (E65) |
| credit contractions (E51) | deeper and more protracted recessions (E65) |
| credit access (G21) | consumption smoothing during recessions (E21) |
| consumption smoothing (D15) | slower employment recoveries (J69) |
| credit access (G21) | optimal job search (J68) |
| credit access (G21) | dampened employment volatility (J63) |
| long-term credit access (G21) | cut reservation wages (J38) |
| credit access (G21) | procyclical employment recovery (E24) |
| growing fluctuating credit access (G21) | higher unemployment rates (J64) |