Are Credit Shocks Supply or Demand Shocks?

Bijapur, Mohan (2013): Are Credit Shocks Supply or Demand Shocks?

Abstract

This paper provides new insights into the relationship between the supply of credit and the macroeconomy. We present evidence that credit shocks constitute shocks to aggregate supply in that they have a permanent effect on output and cause inflation to rise in the short term. Our results also suggest that the effects on aggregate supply have grown stronger in recent decades.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial crisis; Potential output; Inflation; Credit crunch.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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