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The effects of changes in local-bank health on household consumption

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  • Daniel H. Cooper
  • Joe Peek

Abstract

This study investigates the relationship between credit availability and household consumption using a novel approach to separate credit demand and supply. We find that a deterioration in local bank health reduces household consumption, with the strongest effects occurring for households that are more likely to need credit—especially those experiencing a negative income shock and having limited liquid assets. The main contributions of the study are the use of an arguably exogenous measure of local bank health and multifaceted indicators of constrained households. Our findings contribute to the discussion of the linkages between the financial sector and real economic activity.

Suggested Citation

  • Daniel H. Cooper & Joe Peek, 2018. "The effects of changes in local-bank health on household consumption," Working Papers 18-5, Federal Reserve Bank of Boston, revised 01 Dec 2019.
    • Handle: RePEc:fip:fedbwp:18-5
    Note: This is a substantially revised version of the original paper, which was posted in October 2018.
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    References listed on IDEAS

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    More about this item

    Keywords

    credit constraints; local-bank health; consumption;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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