Are Credit Shocks Supply or Demand Shocks?

Unknown, Preprint OPEN
Bijapur, Mohan (2013)
  • Subject: E31 - Price Level ; Inflation ; Deflation | Financial crisis; Potential output; Inflation; Credit crunch. | E32 - Business Fluctuations ; Cycles
    • jel: jel:E32 | jel:E31
    mesheuropmc: education | health care economics and organizations

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.
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