UC Berkeley

This dissertation provides evidence on the effects of changes in the supply of credit to households during the 2000s on employment and other outcomes of interest during the 2000s. In the first chapter I study the effects of contractions in household credit supply during the financial crisis of 2007-2009. I exploit a county’s exposure to the collapse of a large and previously healthy lender as a natural experiment. I show that exposure to this shock appears to be uncorrelated with other important shocks at the time. Reduced form estimates suggest that this shock had large effects on the flow of credit, housing and non-housing expenditures, and employment. Using exposure to this shock as an instrument gives an estimated elasticity of employment with respect to household credit of about 0.3, caused by declines in both housing and non-housing demand. In the second chapter I study the size of the credit supply shock using non-parametric methods. I identify lender-specific supply-side shocks, which I then aggregate into a simple measure of credit supply shocks to counties. I provide conditions under which this measured shock can be used to quantify the importance of supply shocks to credit in both the cross-section and, in a partial equilibrium sense, the aggregate. Combining this measure with various estimates of the elasticity of employment with respect to the measure, I calculate that shocks to household credit can be responsible for 30 to 60% of the decline in employment from 2007 to 2010.