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The Credit-Driven Household Demand Channel
Atif MianPrinceton University
Nobel Symposium On “Money and Banking”
May 24, 2018
1 / 22
2 / 22
AL
AK
AZ
AR
CA
COCT DE
DC
FLGA
HI
ID
IL
IN
IAKS
KYLA
ME
MD
MAMI
MN
MSMO
MT
NE
NV
NH
NJ
NMNY
NC
ND
OH
OK
OR
PA
RISC
SD
TNTX
UT
VT
VA
WAWV
WIWY
0
2
4
6
8
10∆
Une
mpl
oym
ent,
2007
−10
0 10 20 30 40 50 60∆ HH debt to GDP, 2002−07
Source: Mian and Sufi (IMF, 2010).
United States
AUSAUT
BELCAN
CHECZE
DEU
DNK
ESP
FINFRAGBR
GRC
HKG
HUN
IDN
IRL
ITA
JPNKOR
MEXNLDNOR
POL
PRT
SGP
SWE
THA
TUR
USA
−5
0
5
10
15
∆ U
nem
ploy
men
t, 20
07−
10
−20 0 20 40 60∆ HH debt to GDP, 2002−07
Source: Mian, Sufi, and Verner (QJE, 2017).
World
The credit-driven household demand channel
↑ credit supply ⇒ ↑ household aggregate demand ⇒ ↓ future GDP growth.
3 / 22
AL
AK
AZ
AR
CA
COCT DE
DC
FLGA
HI
ID
IL
IN
IAKS
KYLA
ME
MD
MAMI
MN
MSMO
MT
NE
NV
NH
NJ
NMNY
NC
ND
OH
OK
OR
PA
RISC
SD
TNTX
UT
VT
VA
WAWV
WIWY
0
2
4
6
8
10∆
Une
mpl
oym
ent,
2007
−10
0 10 20 30 40 50 60∆ HH debt to GDP, 2002−07
Source: Mian and Sufi (IMF, 2010).
United States
AUSAUT
BELCAN
CHECZE
DEU
DNK
ESP
FINFRAGBR
GRC
HKG
HUN
IDN
IRL
ITA
JPNKOR
MEXNLDNOR
POL
PRT
SGP
SWE
THA
TUR
USA
−5
0
5
10
15
∆ U
nem
ploy
men
t, 20
07−
10
−20 0 20 40 60∆ HH debt to GDP, 2002−07
Source: Mian, Sufi, and Verner (QJE, 2017).
World
The credit-driven household demand channel
↑ credit supply ⇒ ↑ household aggregate demand ⇒ ↓ future GDP growth.
3 / 22
AL
AK
AZ
AR
CA
COCT DE
DC
FLGA
HI
ID
IL
IN
IAKS
KYLA
ME
MD
MAMI
MN
MSMO
MT
NE
NV
NH
NJ
NMNY
NC
ND
OH
OK
OR
PA
RISC
SD
TNTX
UT
VT
VA
WAWV
WIWY
0
2
4
6
8
10∆
Une
mpl
oym
ent,
2007
−10
0 10 20 30 40 50 60∆ HH debt to GDP, 2002−07
Source: Mian and Sufi (IMF, 2010).
United States
AUSAUT
BELCAN
CHECZE
DEU
DNK
ESP
FINFRAGBR
GRC
HKG
HUN
IDN
IRL
ITA
JPNKOR
MEXNLDNOR
POL
PRT
SGP
SWE
THA
TUR
USA
−5
0
5
10
15
∆ U
nem
ploy
men
t, 20
07−
10
−20 0 20 40 60∆ HH debt to GDP, 2002−07
Source: Mian, Sufi, and Verner (QJE, 2017).
World
The credit-driven household demand channel
↑ credit supply ⇒ ↑ household aggregate demand ⇒ ↓ future GDP growth.
3 / 22
AL
AK
AZ
AR
CA
COCT DE
DC
FLGA
HI
ID
IL
IN
IAKS
KYLA
ME
MD
MAMI
MN
MSMO
MT
NE
NV
NH
NJ
NMNY
NC
ND
OH
OK
OR
PA
RISC
SD
TNTX
UT
VT
VA
WAWV
WIWY
0
2
4
6
8
10∆
Une
mpl
oym
ent,
2007
−10
0 10 20 30 40 50 60∆ HH debt to GDP, 2002−07
Source: Mian and Sufi (IMF, 2010).
United States
AUSAUT
BELCAN
CHECZE
DEU
DNK
ESP
FINFRAGBR
GRC
HKG
HUN
IDN
IRL
ITA
JPNKOR
MEXNLDNOR
POL
PRT
SGP
SWE
THA
TUR
USA
−5
0
5
10
15
∆ U
nem
ploy
men
t, 20
07−
10
−20 0 20 40 60∆ HH debt to GDP, 2002−07
Source: Mian, Sufi, and Verner (QJE, 2017).
World
The credit-driven household demand channel
↑ credit supply ⇒ ↑ household aggregate demand ⇒ ↓ future GDP growth.
3 / 22
Outline
• Evidence from business cycles internationally, as well as regional business cycleswithin the U.S., over the last half-century
• International evidence - including a new out of sample test of previous findings
• A natural experiment using the U.S. banking deregulation wave from the 1980s
• U.S. regional evidence from the Great Recession
• Implications of the credit-driven household demand channel for
• Macroeconomic theory and long run fundamentals
• Public policy (monetary policy, macro-prudential policy, and crisis response)
4 / 22
Empirical Challenges
• How to isolate credit supply expansion?
• ↑ in quantity and ↓ in spreads, deregulation/policy experiments, differentialpass-through of global shocks (e.g. oil, securitization, savings glut)
• How to identify change in household aggregate demand?
• Focus on nontradable/tradable sectors, relative size and prices
• Asymmetry between household and non-financial firm credit
• Use of micro data and regional variation
5 / 22
International Evidence
−.8
−.6
−.4
−.2
0
.2
.4
.6
0 2 4 6 8 10Years after Shock
Source: Mian, Sufi, and Verner (QJE, 2017)
GDP Response to HH Debt Shock
−.8
−.6
−.4
−.2
0
.2
.4
.6
0 2 4 6 8 10Years after Shock
Source: Mian, Sufi, and Verner (QJE, 2017)
GDP Response to NF Debt Shock
6 / 22
International Evidence
MSV2017 30 Countries
(1) (2) (3) (4) (5) (6)
∆3CitYit
∆3NXitYit
∆3sMCit ∆3 ln
(LNTitLTit
)∆3 ln
(PNTit
PTit
)∆3yi ,t+4
∆3dHHit 0.058∗ -0.15∗∗ 0.055∗
0.36∗∗ 0.38∗∗ -0.34∗∗
(0.024) (0.051) (0.025)
(0.056) (0.097) (0.089)
∆3dFit 0.038∗∗ -0.00036 -0.012
0.0085 -0.065 -0.032
(0.012) (0.031) (0.021)
(0.064) (0.059) (0.038)
Country fixed effects X X X
X X X
R2 0.087 0.062 0.012
0.17 0.067 0.11
Observations 816 832 858
639 670 840
Standard errors in parentheses
30 countries, 1962-2012. Source: Mian, Sufi, and Verner (QJE, 2017).+ p < 0.1, ∗ p < 0.05, ∗∗ p < 0.01
7 / 22
International Evidence
MSV2017 30 Countries
(1) (2) (3) (4) (5) (6)
∆3CitYit
∆3NXitYit
∆3sMCit ∆3 ln
(LNTitLTit
)∆3 ln
(PNTit
PTit
)∆3yi ,t+4
∆3dHHit 0.058∗ -0.15∗∗ 0.055∗ 0.36∗∗ 0.38∗∗
-0.34∗∗
(0.024) (0.051) (0.025) (0.056) (0.097)
(0.089)
∆3dFit 0.038∗∗ -0.00036 -0.012 0.0085 -0.065
-0.032
(0.012) (0.031) (0.021) (0.064) (0.059)
(0.038)
Country fixed effects X X X X X
X
R2 0.087 0.062 0.012 0.17 0.067
0.11
Observations 816 832 858 639 670
840
Standard errors in parentheses
30 countries, 1962-2012. Source: Mian, Sufi, and Verner (QJE, 2017).+ p < 0.1, ∗ p < 0.05, ∗∗ p < 0.01
7 / 22
International Evidence
MSV2017 30 Countries
(1) (2) (3) (4) (5) (6)
∆3CitYit
∆3NXitYit
∆3sMCit ∆3 ln
(LNTitLTit
)∆3 ln
(PNTit
PTit
)∆3yi ,t+4
∆3dHHit 0.058∗ -0.15∗∗ 0.055∗ 0.36∗∗ 0.38∗∗ -0.34∗∗
(0.024) (0.051) (0.025) (0.056) (0.097) (0.089)
∆3dFit 0.038∗∗ -0.00036 -0.012 0.0085 -0.065 -0.032
(0.012) (0.031) (0.021) (0.064) (0.059) (0.038)
Country fixed effects X X X X X XR2 0.087 0.062 0.012 0.17 0.067 0.11Observations 816 832 858 639 670 840
Standard errors in parentheses
30 countries, 1962-2012. Source: Mian, Sufi, and Verner (QJE, 2017).+ p < 0.1, ∗ p < 0.05, ∗∗ p < 0.01
7 / 22
International Evidence
IMF2018Additional
MSV2017 30 Countries 105 Countries
(1) (2) (3) (4) (5) (6) (7)
∆3CitYit
∆3NXitYit
∆3sMCit ∆3 ln
(LNTitLTit
)∆3 ln
(PNTit
PTit
)∆3yi ,t+4 ∆3yi ,t+4
∆3dHHit 0.058∗ -0.15∗∗ 0.055∗ 0.36∗∗ 0.38∗∗ -0.34∗∗ -0.37∗
(0.024) (0.051) (0.025) (0.056) (0.097) (0.089) (0.17)
∆3dFit 0.038∗∗ -0.00036 -0.012 0.0085 -0.065 -0.032 -0.019∗∗
(0.012) (0.031) (0.021) (0.064) (0.059) (0.038) (0.0072)
Country fixed effects X X X X X X XR2 0.087 0.062 0.012 0.17 0.067 0.11 0.056Observations 816 832 858 639 670 840 964
Standard errors in parentheses
30 countries, 1962-2012. Source: Mian, Sufi, and Verner (QJE, 2017).+ p < 0.1, ∗ p < 0.05, ∗∗ p < 0.01
8 / 22
Rise in household leverage predicts GDP slowdown
−20
0
20
40
GD
P g
row
th, t
to t+
3
−10 0 10 20 30Household Debt to GDP Expansion, t−4 to t−1
MSV2017 30 CountriesIMF2018 Additional 105 Countries
Source: Mian, Sufi, and Verner (QJE, 2017).
9 / 22
Deregulation experiment in the 1980s in U.S.
100
150
200
250
1980 1982 1984 1986 1988 1990 1992
Early DeregulationLate Deregulation
Source: Mian, Sufi, and Verner (WP, 2018).
Total Bank Credit
50
60
70
80
90
100
1980 1982 1984 1986 1988 1990 1992Source: Mian, Sufi, and Verner (WP, 2018).
Unemployment Rate
10 / 22
Deregulation experiment in the 1980s in U.S.
100
150
200
250
1980 1982 1984 1986 1988 1990 1992
Early DeregulationLate Deregulation
Source: Mian, Sufi, and Verner (WP, 2018).
Total Bank Credit
50
60
70
80
90
100
1980 1982 1984 1986 1988 1990 1992Source: Mian, Sufi, and Verner (WP, 2018).
Unemployment Rate
10 / 22
Local demand and NT / T sector expands
AK
AL
AR
AZ
CA
CO
CT
DC
FL
GA
HI
IAID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MOMS
MT
NC
ND
NE
NH
NJ
NM
NV
NYOH
OK
ORPA
RI
SC
TN
TX
UT
VA
VT
WA
WI
WV
WY−0.10
0.00
0.10
0.20
0.30
0.40
−2 −1 0 1 2Deregulation exposure
Source: Mian, Sufi, and Verner (WP, 2018).
Non−Tradable Employment Growth, 82−89
AK
ALAR
AZ
CA
CO
CTDC
FL GA
HI
IA
ID
IL
INKS
KY
LA
MA
MD
ME
MIMN
MO
MS
MT NCND
NENH
NJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
UT
VA
VT
WA
WI
WVWY
−0.30
−0.20
−0.10
0.00
0.10
0.20
−2 −1 0 1 2Deregulation exposure
Source: Mian, Sufi, and Verner (WP, 2018).
Tradable Employment Growth, 82−89
11 / 22
Local demand and NT / T sector expands
AK
AL
AR
AZ
CA
CO
CT
DC
FL
GA
HI
IAID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MOMS
MT
NC
ND
NE
NH
NJ
NM
NV
NYOH
OK
ORPA
RI
SC
TN
TX
UT
VA
VT
WA
WI
WV
WY−0.10
0.00
0.10
0.20
0.30
0.40
−2 −1 0 1 2Deregulation exposure
Source: Mian, Sufi, and Verner (WP, 2018).
Non−Tradable Employment Growth, 82−89AK
ALAR
AZ
CA
CO
CTDC
FL GA
HI
IA
ID
IL
INKS
KY
LA
MA
MD
ME
MIMN
MO
MS
MT NCND
NENH
NJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
UT
VA
VT
WA
WI
WVWY
−0.30
−0.20
−0.10
0.00
0.10
0.20
−2 −1 0 1 2Deregulation exposure
Source: Mian, Sufi, and Verner (WP, 2018).
Tradable Employment Growth, 82−89
11 / 22
Local demand and NT / T price rises
CA
CO
CT
FL
GAHI
ILIN
KS KY
MAMD
ME
MI
MNMO
NH
NJ
NY
OH
OR
PA
TX
WAWI
0.15
0.20
0.25
0.30
0.35
−2 −1 0 1 2Deregulation exposure
(Alaska excluded)Source: Mian, Sufi, and Verner (WP, 2018).
Non−tradable CPI Inflation, 84−89
CA
CO
CT
FLGA
HI
ILIN
KSKY
MA
MD
MEMI
MN
MONHNJ
NY
OHOR
PATX
WA
WI
0.05
0.10
0.15
0.20
0.25
−2 −1 0 1 2Deregulation exposure
(Alaska excluded)Source: Mian, Sufi, and Verner (WP, 2018).
Tradable CPI Inflation, 84−89
12 / 22
Local demand and NT / T price rises
CA
CO
CT
FL
GAHI
ILIN
KS KY
MAMD
ME
MI
MNMO
NH
NJ
NY
OH
OR
PA
TX
WAWI
0.15
0.20
0.25
0.30
0.35
−2 −1 0 1 2Deregulation exposure
(Alaska excluded)Source: Mian, Sufi, and Verner (WP, 2018).
Non−tradable CPI Inflation, 84−89
CA
CO
CT
FLGA
HI
ILIN
KSKY
MA
MD
MEMI
MN
MONHNJ
NY
OHOR
PATX
WA
WI
0.05
0.10
0.15
0.20
0.25
−2 −1 0 1 2Deregulation exposure
(Alaska excluded)Source: Mian, Sufi, and Verner (WP, 2018).
Tradable CPI Inflation, 84−89
12 / 22
Rise in household leverage predicts depth of 1990/91 recession
AK
ALAR
AZ
CA
CO
CTDC
FL
GAHI
IA
ID
ILIN
KSKYLA
MA
MDME
MI
MNMO
MSMT
NC
NDNE
NHNJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
UT
VA
VT
WAWI
WV
WY
−2.00
0.00
2.00
4.00
6.00
∆ U
nem
ploy
men
t, 19
89−
92
−2 −1 0 1 2 3∆ HH Leverage, 1982−89
Source: Mian, Sufi, and Verner (WP, 2018).
13 / 22
U.S. experience during the 2000’s
• A large expansion in credit supply, Mian and Sufi (2009), (also see [1])
• Credit expansion led to an increase in local demand and the non-tradable sectorexpanded, Di Maggio and Kermani (2017)
• When the music stops, Fisher’s “debt deflation” dynamics take hold (see [2])
• large fall in demand, Mian et al. (2013)
• fall in employment due to demand shortgage, Mian and Sufi (2014)
• foreclosure fire-sale externalities amplify the negative cycle, Mian et al. (2015)
14 / 22
The fall in demand
−.4
−.2
0
.2
∆ E
xpen
ditu
re, 0
6−09
−.3 −.25 −.2 −.15 −.1 −.05 0 .05∆ HH net worth, 06−09
Source: Mian, Rao, and Sufi (QJE, 2013).
15 / 22
Fall in employment in response to demand
−.15
−.1
−.05
0
.05
.1
∆ T
rada
ble
Em
ploy
men
t, 07
−09
−.15
−.1
−.05
0
.05
.1
∆ N
on−
Tra
dabl
e E
mpl
oym
ent,
07−
09
−.3 −.25 −.2 −.15 −.1 −.05 0 .05∆ HH net worth, 06−09
Source: Mian and Sufi (ECMA, 2014).
16 / 22
Fall in employment in response to demand
−.15
−.1
−.05
0
.05
.1
∆ T
rada
ble
Em
ploy
men
t, 07
−09
−.15
−.1
−.05
0
.05
.1
∆ N
on−
Tra
dabl
e E
mpl
oym
ent,
07−
09
−.3 −.25 −.2 −.15 −.1 −.05 0 .05∆ HH net worth, 06−09
Source: Mian and Sufi (ECMA, 2014).
17 / 22
Theoretical implications of credit-driven household demand channel
18 / 22
• Heterogeneity across borrowers and creditors matters as it interacts withfrictions like ZLB & wage rigidity. e.g. Eggertsson and Krugman (2012), Farhi and
Werning (2015), Guerrieri and Lorenzoni (2017), Schmitt-Grohe and Uribe (2016) ([3])
• Ex-ante “over-borrowing” due to AD and pecuniary externalities (see [4])
0
.005
.01
.015
.02
.025
.03
<= 30% 30%−50% 50%−70% 70%−90% > 90%
Source: Mian, Rao, and Sufi (QJE, 2013).
MPC out of Housing Wealth by HH Leverage, ’06−09
0
.05
.1
.15
.2
.25
< 700 700 − 799 800 − 899 900 − 999
Source: Mian and Sufi (AER, 2011).
MPB out of Housing Wealth by Credit Score, ’02−06
19 / 22
• Systematic forecasting errors suggests departure from rational expectationswith common beliefs (See [5])
• Important to model heterogeneous beliefs and behavioral biases, e.g.Geanakoplos (2010), Gennaioli et al. (2012), Lopez-Salido et al. (2017) ([6])
THA2002
HUN1993
NOR1994
THA2001FIN1996
HUN1994
FIN1997
CHE2009
SGP2007
NOR1996
DEU2009
SWE1996
NOR1995
HKG2007
NOR1993
DEU2008
SGP2008
FIN1998
FIN1995SWE1997
SWE1992
SWE1993
HKG2008NOR1997
NOR1992
THA2003
HKG2006
FIN1999SWE1995
DEU2007
SWE1994NOR1998
HUN1997
JPN2005HUN1998
HKG2009
CHE2008CZE1999
HUN1996JPN2003JPN2004
JPN2007
HKG2005
JPN2009SWE1998GBR1997
JPN2006
MEX1999
MEX2000
GBR1996
FRA1997
DEU1991
JPN2008
HUN1995
HUN1999
DEU2006
MEX2001
ITA1996
KOR2000
KOR2001ITA1997
CAN1996
DEU1992
DEU2005
SGP2009
GBR1995
MEX2002
CAN2002BEL2003NOR2001DEU1993
BEL2002
FRA1998
TUR2004
DEU1990
JPN2002ITA1998DEU2004
HKG1995
FIN1994
MEX1998TUR1997
THA2009
TUR1991FIN2000
DEU2003
CAN2001
ITA1992
CZE2000
TUR1990FRA1996GBR1998
TUR2003
ESP1993
NOR2002
CZE2001ITA1995HUN2000
BEL1996
TUR2002
FRA1999
TUR1992
THA2000CHE2007TUR1993
IDN2009
ESP1995
ESP1996
THA2008
JPN1999
GBR1994
CHE2003MEX2003
TUR2000
JPN1994
AUT2009
PRT1991
JPN1998FRA2001
BEL2004
ITA1991FRA2000
SGP2006
CAN1997
KOR2006
ESP1997
IDN2008
ESP1994BEL2001
AUS1993
TUR1995
TUR1999
KOR1999
PRT1992
ITA1990
NOR1999
TUR1996
BEL1997
USA1995
JPN1993ITA1994
NOR1991
CAN2003
CZE2002
FRA1995JPN2001ITA1999
AUS1991
TUR2001
USA1994
CAN1995SWE1999AUT1999HUN2001
MEX2004
FRA2002
JPN2000
AUT2004
FIN2001GBR1999USA1999
TUR1998
BEL2005BEL1995ITA1993
USA1998
MEX2005FRA2003
USA2000
HKG2004
JPN1995
FIN1993
ESP1992
CAN1998AUS1992
PRT1993AUS1990
SGP2001
MEX2006
AUT2003USA1993
IDN2007
POL2006
JPN1997
TUR1994
SWE1991NOR2000
MEX2009
THA2007
BEL1998
HKG1996
HKG2003
AUT2001THA2004
POL2002
POL2000MEX2007
POL2001
KOR1996
USA1996
PRT1990
AUT2000SWE2000
GRC1998
TUR2005FRA1993
FRA2004
USA1997
FIN2002CAN2000NOR2009BEL1994USA1992
BEL2000AUT2008
AUS1994
FIN2003
FRA1994
AUT2005ESP1998
USA1991
JPN1996
USA1990DEU1994
NOR2007
GRC1999
BEL1992
GBR1993
FRA1992
FIN1992
DEU2002
SGP2000
MEX2008
BEL1993
CZE2003
AUT2002
ITA2000
SWE2001USA2001BEL1999
KOR1997
GRC2000
SGP2005
POL1999
FRA1991
CZE2004
BEL1991BEL2006
HUN2002
KOR1998
FRA1990
CAN1994
HKG1997ESP1991
HKG2002
CAN1999
FRA2005
POL2005
IDN2006
SGP1999
NLD1994
ITA2003
USA2009
BEL1990ITA2001
TUR2009
IDN2005NLD2009GBR2000
ITA2004
SGP2003
KOR1994
CZE2006
KOR1995
JPN1992
HKG1994
ITA2002
CZE2005
POL2007
FIN1991
THA2006
DNK2002GBR2001
TUR2006
CAN2004
BEL2007
AUS2009
AUT2007
POL2004
AUT2006NOR2008
GRC2001
SWE2002
ITA2005
AUS1995SWE2003
FRA2006
KOR2007DEU2001
ITA2009
NOR2006
NOR2003SGP2002
FIN2009SGP1998
DEU1995
TUR2007
TUR2008GBR1992BEL2009POL2003
DNK2001THA2005BEL2008
SGP1995
PRT1994
FIN2004
CHE2006
KOR2005
USA2002ESP1999
SWE2004
HKG2001
HUN2003
DEU1998
NLD1995
GBR2008
CZE2007
FRA2009
KOR1993
FRA2007ESP1990
ITA2006
SWE2005
DEU1999
SWE1990
DEU1997CAN2005CAN1993THA1999
AUS1996CHE2005
FRA2008
CHE2004
DEU2000CAN2006
KOR2002
DEU1996GBR2009
JPN1991
CAN1992
AUS1998
SWE2008
NLD1996
DNK2000
CAN2007
CAN1991
AUS1997SWE2009
ITA2007
ITA2008
GBR2002
PRT1995
NOR1990
FIN1990
GRC2002
CAN1990
FIN2008
KOR2009
SGP1996
ESP2003
POL2008
HUN2007
SWE2006
AUS1999ESP2002
USA2008
SWE2007
CZE2008
CZE2009
FIN2005
SGP1997GBR1991
DNK2003
ESP2000
PRT2009CAN2008KOR1990
HUN2008
NLD1997
USA2007
USA2003
PRT1997
CAN2009
DNK1999
PRT1996
KOR2008
DNK1998KOR1992
HUN2004
GBR2007
NLD2008
KOR1991
ESP2004
ESP2001
SGP2004
FIN2007
NOR2005
AUS2001
GBR1990
ESP2009
GRC2003
NLD2003
GBR2006
AUS2000
HUN2005
AUS2002
HKG1998
HUN2006
THA1998
PRT1998
GBR2003
FIN2006
DNK2004
PRT2008
USA2006
NLD1998
GRC2004
JPN1990
THA1997
PRT2005
NLD2002
AUS2008
THA1996
HUN2009
PRT2007HKG2000
PRT2004
USA2005
DNK2005AUS2003
PRT2006
GRC2005NOR2004
THA1995
HKG1999
USA2004
POL2009
PRT2003
GBR2004KOR2004
NLD2007
NLD2004
PRT1999
ESP2005
AUS2007
GRC2009
NLD1999
DNK2006
GBR2005
GRC2006NLD2001
NLD2005
DNK2009
NLD2000
ESP2008
KOR2003AUS2004
GRC2007
PRT2002ESP2006PRT2000
NLD2006
GRC2008
AUS2006
DNK2008
DNK2007
ESP2007
PRT2001
AUS2005IRL2009
IRL2008
IRL2006
IRL2007
−30
−20
−10
0
10
20
IMF
WE
O t
to t+
3 G
DP
For
ecas
t Err
or
−10 0 10 20 30 40Household Debt to GDP Expansion, t−4 to t−1
Source: Mian, Sufi, and Verner (QJE, 2017)20 / 22
• Is there a link between secular rise in household credit, Jorda et al. (2016),falling interest rate and rising inequality and savings glut? (see [7])
0
.5
1
1.5
2
Deb
t to
Inco
me
1960 1970 1980 1990 2000 2010Year
bot 99%top 1%
Source: Mian and Sufi (WP, 2018).
21 / 22
Public policy implications of credit-driven household demand channel
• Post-2007 policy should have focused on reducing household debt servicepayments and preventing foreclosures (see [8]).
• Mortgage design matters, more equity-like contracts that promote risk-sharinghave benefits at the macro level
• Monetary policy pass-through depends on the credit-driven household demandchannel, e.g. Di Maggio et al. (2017)
• UK and many other countries have since adopted macro-prudential regulationsthat impose constraints based on loan to value or debt service to income
22 / 22
Notes
1. Adelino et al. (2014), Demyanyk and Van Hemert (2011), Favara and Imbs(2015), Justiniano et al. (2015, 2017), Keys et al. (2010), Levitin and Wachter(2012), Mian and Sufi (2009, 2017)
2. Andersen et al. (2014), Bahadir and Gumus (2016), Bunn and Rostom (2015),Drehmann et al. (2017), Giroud and Mueller (2017), Glick and Lansing (2010),IMF (2012, 2017), Di Maggio and Kermani (2017), Martin and Philippon (2014),Mian and Sufi (2010, 2011, 2014), Mian et al. (2013, 2017a,b), Verner andGyongyosi (2017)
3. Eggertsson and Krugman (2012), Farhi and Werning (2015), Guerrieri andLorenzoni (2017), Huo and Rıos-Rull (2016), Korinek and Simsek (2016),Lorenzoni (2008), Schmitt-Grohe and Uribe (2016)
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Notes
4. Agarwal et al. (2017, 2018), Aladangady (2014), Baker (2018), Cloyne et al.(2017), Di Maggio et al. (2017), Ganong and Noel (2017a,b), Jorda et al. (2014),Liu et al. (2018), Mian and Sufi (2018b, Forthcoming)
5. Mian et al. (2017b), Baron and Xiong (2016)
6. Baron and Xiong (2016), Bordalo et al. (2017), Burnside et al. (2017),Geanakoplos (2010), Gennaioli et al. (2012), Kindleberger (1978), Kindelbergerand Aliber (2005), Krishnamurthy and Muir (2016), Lopez-Salido et al. (2017),Mian and Sufi (2018a), Minsky (2008), Nathanson and Zwick (2017)
7. Favilukis et al. (2012), Jorda et al. (2016), Kumhof et al. (2015)
8. Agarwal et al. (2018), Aladangady (2014), Cloyne et al. (2017), Di Maggio et al.(2017), Jorda et al. (2014, 2013), Ganong and Noel (2017b), Mian and Sufi(2015)
2 / 10
References I
Adelino, Manuel, Antoinette Schoar, and Felipe Severino, “Credit supply and house prices:Evidence from mortgage market segmentation,” Available at SSRN 1787252, 2014.
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Aladangady, Aditya, “Homeowner Balance Sheets and Monetary Policy,” FEDS Working Paper,Federal Reserve Board 2014.
Andersen, Asger L., Charlotte Duus, and Thais L. Jensen, “Household Debt and ConsumptionDuring the Financial Crisis: Evidence from Danish Micro Data,” 2014. Working Paper.
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Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer, “Diagnostic Expectations and CreditCycles,” Journal of Finance, 2017.
Bunn, Philip and May Rostom, “Household Debt and Spending in the United Kingdom,” 2015. Bankof England Working Paper.
Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo, “Understanding Booms and Busts inHousing Markets,” Journal of Political Economy, 2017, 124, 1088–1147.
Cloyne, James, Clodomiro Ferreira, and Paolo Surico, “Monetary Policy When Households HaveDebt: New Evidence on the Transmission Mechanism,” 2017.
Demyanyk, Yuliya and Otto Van Hemert, “Understanding the subprime mortgage crisis,” Review offinancial Studies, 2011, 24 (6), 1848–1880.
Di Maggio, Marco, Amir Kermani, Benjamin J. Keys, Tomasz Piskorski, Ramcharan Rodney,Amit Seru, and Vincent Yao, “Interest Rate Pass-Through: Mortgage Rates, HouseholdConsumption, and Voluntary Deleveraging,” American Economic Review, 2017, 107 (11), 3550–88.
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References IIIDrehmann, Mathias, Mikael Juselius, and Anton Korinek, “Accounting for debt service: the painfullegacy of credit booms,” BIS Working Papers No 645 June 2017.
Eggertsson, Gauti B. and Paul Krugman, “Debt, Deleveraging, and the Liquidity Trap: AFisher-Minsky-Koo Approach,” Quarterly Journal of Economics, 2012, 127 (3), 1469–1513.
Farhi, Emmanuel and Ivan Werning, “A Theory of Macroprudential Policies in the Presence ofNominal Rigidities,” 2015. Working Paper.
Favara, Giovanni and Jean Imbs, “Credit supply and the price of housing,” The American EconomicReview, 2015, 105 (3), 958–992.
Favilukis, Jack, David Kohn, Sydney C Ludvigson, and Stijn Van Nieuwerburgh, “Internationalcapital flows and house prices: Theory and evidence,” in “Housing and the Financial Crisis,” Universityof Chicago Press, 2012, pp. 235–299.
Ganong, Peter and Pascal Noel, “Consumer Spending During Unemployment: Positive andNormative Implications,” 2017. Working Paper.
and , “The Effect of Debt on Default and Consumption: Evidence from Housing Policy in the GreatRecession,” 2017. Working Paper.
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References IV
Gennaioli, Nicola, Andrei Shleifer, and Robert Vishny, “Neglected risks, financial innovation, andfinancial fragility,” Journal of Financial Economics, 2012, 104 (3), 452–468.
Giroud, Xavier and Holger M. Mueller, “Firm Leverage, Consumer Demand, and Unemploymentduring the Great Recession,” Quarterly Journal of Economics, forthcoming, 2017.
Glick, Reuven and Kevin J. Lansing, “Global household leverage, house prices, and consumption,”FRBSF Economic Letter, 2010, (11).
Guerrieri, Veronica and Guido Lorenzoni, “Credit crises, precautionary savings, and the liquiditytrap,” The Quarterly Journal of Economics, 2017, 132 (3), 1427–1467.
Huo, Zhen and Jose-Vıctor Rıos-Rull, “Financial Frictions, Asset Prices, and the Great Recession,”2016. Working Paper.
IMF, “Dealing with Household Debt,” in “World Economic Outlook, April” April 2012.
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Jorda, Oscar, Moritz Schularick, and Alan M. Taylor, “When Credit Bites Back,” Journal of Money,Credit and Banking, 2013, 45 (s2), 3–28.
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References V
Jorda, Oscar, Moritz Schularick, and Alan M Taylor, “The great mortgaging: housing finance, crisesand business cycles,” Economic Policy, 2016, 31 (85), 107–152.
Justiniano, Alejandro, Giorgio E. Primiceri, and Andrea Tambalotti, “Credit Supply and theHousing Boom,” Working Paper 20874, National Bureau of Economic Research January 2015.
, , and , “The Mortgage Rate Conundrum,” 2017. Working Paper.
Keys, Benjamin J, Tanmoy Mukherjee, Amit Seru, and Vikrant Vig, “Did securitization lead to laxscreening? Evidence from subprime loans,” The Quarterly journal of economics, 2010, 125 (1),307–362.
Kindelberger, Charles P and Robert Z Aliber, Manias, panics and crashes: A history of financialcrises, Palgrave Macmillan, 2005.
Kindleberger, Charles, Manias, Panics and Crashes: A history of financial crises, New York, BasicBooks, 1978.
Korinek, Anton and Alp Simsek, “Liquidity trap and excessive leverage,” The American EconomicReview, 2016, 106 (3), 699–738.
Krishnamurthy, Arvind and Tyler Muir, “How credit cycles across a financial crisis,” Working paper,2016.
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References VIKumhof, Michael, Romain Ranciere, and Pablo Winant, “Inequality, Leverage, and Crises,”American Economic Review, 2015, 105, 1217–1245.
Levitin, Adam J. and Susan M. Wachter, “Explaining the Housing Bubble,” 2012. Working Paper.
Liu, Ernest, Atif Mian, and Amir Sufi, “Low Interest Rates, Market Power and ProductivityGrowth,” 2018.
Lopez-Salido, David, Jeremy C Stein, and Egon Zakrajsek, “Credit-market sentiment and thebusiness cycle,” The Quarterly Journal of Economics, 2017, p. qjx014.
Lorenzoni, Guido, “Inefficient Credit Booms,” The Review of Economic Studies, 2008, 75 (3),809–833.
Martin, Philippe and Thomas Philippon, “Inspecting the Mechanism: Leverage and the GreatRecession in the Eurozone,” 2014. Working Paper.
Mian, Atif, Amir Sufi, and Francesco Trebbi, “Foreclosures, house prices, and the real economy,”The Journal of Finance, 2015, 70 (6), 2587–2634.
and , “The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage DefaultCrisis,” The Quarterly Journal of Economics, 2009, 124 (4), pp. 1449–1496.
and , “Household Leverage and the Recession of 2007-09,” IMF Economic Review, 2010, 58 (1),74–117.
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References VII
and , “House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis,”American Economic Review, August 2011, 101 (5), 2132–56.
and , “What Explains the 2007–2009 Drop in Employment?,” Econometrica, 2014, 82 (6), 2197–2223.
and , House of debt: How they (and you) caused the Great Recession, and how we can prevent itfrom happening again, University of Chicago Press, 2015.
and , “Fueling a Frenzy: Private Label Securitization and the Housing Cycle of 2000 to 2010,”Working Paper 2018.
and , “Inequality, Surplus Savings and Credit Creation,” 2018.
and , “Finance and Business Cycles: The Credit-Driven Household Demand Channel,” Journal ofEconomic Perspectives, Forthcoming.
, Kamalesh Rao, and Amir Sufi, “Household Balance Sheets, Consumption, and the EconomicSlump,” The Quarterly Journal of Economics, 2013, 128 (4), 1687–1726.
Mian, Atif R, Amir Sufi, and Emil Verner, “Credit Supply and Business Cycle Ampli cation:Evidence from Banking Deregulation in the 1980s,” 2017.
, , and , “Household debt and business cycles worldwide,” forthcoming, Quarterly Journal ofEconomics, 2017.
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References VIII
and , “Household Debt and Defaults from 2000 to 2010: The Credit Supply View,” Evidence andInnovation in Housing Law and Policy, 2017.
Minsky, Hyman P, Stabilizing an unstable economy, Vol. 1, McGraw-Hill New York, 2008.
Nathanson, Charles G. and Eric Zwick, “Arrested Development: Theory and Evidence of Supply-SideSpeculation in the Housing Market,” National Bureau of Economic Research June 2017.
Schmitt-Grohe, Stephanie and Martın Uribe, “Downward Nominal Wage Rigidity, Currency Pegs,and Involuntary Unemployment,” Journal of Political Economy, 2016.
Verner, Emil and Gyozo Gyongyosi, “Household Debt Revaluation and the Real Economy: Evidencefrom a Foreign Currency Debt Crisis,” 2017.
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