Employment in the Great Recession: How Important Were Household Credit Supply Shocks?

Household Credit and Employment in the Great Recession

How much did the contraction in the supply of credit to households contribute to the decline in employment during the Great Recession? To answer this question I provide new estimates of: (1) the elasticity of employment with respect to household credit; and (2) the size of the supply shock to household credit. I exploit a county’s exposure to the collapse of a large and previously healthy lende...

The Great Recession and Financial Shocks

A case can be made for the Great Recession being the result of a large financial shock that makes household borrowing difficult. The channel involves large reductions in house prices, which trigger sharp reductions in consumption. We discuss the ingredients that a quantitative model of the economy requires to be successful in implementing such a theory. They include: wealth heterogeneity where ...

Learning Leverage Shocks and the Great Recession

This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning their economic environment. When agents update their beliefs about the unobserved process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning are significantly larger than under ra...

Employment Hysteresis from the Great Recession

This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment. In full-population longitudinal data, I find that exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, evidently via labor force exit. These shocks also increase...

Staying the Course: U.S. Employment Strategy during the Great Recession