The Impact of Consumer Credit Access on Unemployment

Kyle Herkenhoff

114 citations0/0 files storedThe Review of Economic Studies

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Economic Theory and Policy

Abstract

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.

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References

1994Job Creation and Job Destruction in the Theory of Unemployment 1992Earnings Losses of Displaced Workers 2005The Cyclical Behavior of Equilibrium Unemployment and Vacancies 1981Debt with Potential Repudiation: Theoretical and Empirical Analysis 1983Equilibrium Price Dispersion 2008The cyclical behavior of equilibrium unemployment and vacancies revisited 1998The European Unemployment Dilemma 2002Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data

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