Local financialization,household debt,and the great recession |
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Authors: | Luke Petach |
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Affiliation: | Jack C. Massey College of Business, Belmont University, Nashville, 37212 Tennessee, USA |
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Abstract: | To test the relationship between local financial sector activity and household borrowing, I exploit the credit-supply shock that occurred prior to the Great Recession as a plausibly exogenous source of variation in borrowing behavior. Using a difference-in-differences approach I find that per-capita indebtedness increased by several thousand dollars—approximately 10%—more in states with a large local financial sector during the housing market boom. A similar positive relationship between financialization and indebtedness holds at the county level. These results suggest the growing influence of local financial markets as a fundamental cause of the Great Recession. |
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Keywords: | financialization household debt regional business cycles the great recession |
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