The Impact of Consumer Credit Access on Unemployment

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Abstract

Unemployed households' access to unsecured revolving credit more than tripled over the last three decades. This article analyses 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.

Original languageEnglish (US)
Pages (from-to)2605-2642
Number of pages38
JournalReview of Economic Studies
Volume86
Issue number6
DOIs
StatePublished - Nov 1 2019

Bibliographical note

Funding Information:
I would like to thank Lee Ohanian for his support and advice. I would like to thank the editor Michele Tertilt, and four anonymous referees for their comments. I would like to thank Andy Atkeson, Manuel Amador, Yves Balasko, Gary Hansen, Hugo Hopenhayn, Erik Hurst, Loukas Karabarbounis, Tim Kehoe, John Kennes, Ricardo Lagos, Jeremy Lise, Ellen McGrattan, Seth Neumuller, Guido Menzio, Casey Mulligan, Ana Luisa Pessoa Araujo, Fabrizio Perri, Ed Prescott, Andrea Raffo, Guillaume Rocheteau, Jim Schmitz, Robert Shimer, Nancy Stokey, and Pierre-Olivier Weill for comments. This paper was partly written at the Federal Reserve Bank of Minneapolis and the Federal Reserve Bank of St. Louis. I am especially grateful for their hospitality. This research was supported by the National Science Foundation (Award No. SES-1824422) and the UCLA Ziman Center for Real Estate.

Funding Information:
Acknowledgments. I would like to thank Lee Ohanian for his support and advice. I would like to thank the editor Michele Tertilt, and four anonymous referees for their comments. I would like to thank Andy Atkeson, Manuel Amador, Yves Balasko, Gary Hansen, Hugo Hopenhayn, Erik Hurst, Loukas Karabarbounis, Tim Kehoe, John Kennes, Ricardo Lagos, Jeremy Lise, Ellen McGrattan, Seth Neumuller, Guido Menzio, Casey Mulligan, Ana Luisa Pessoa Araujo, Fabrizio Perri, Ed Prescott, Andrea Raffo, Guillaume Rocheteau, Jim Schmitz, Robert Shimer, Nancy Stokey, and Pierre-Olivier Weill for comments. This paper was partly written at the Federal Reserve Bank of Minneapolis and the Federal Reserve Bank of St. Louis. I am especially grateful for their hospitality. This research was supported by the National Science Foundation (Award No. SES-1824422) and the UCLA Ziman Center for Real Estate.

Keywords

  • Business cycles
  • Default
  • E21
  • E24
  • E3
  • G21
  • J6
  • Search and matching
  • Unemployment

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