Finance

Electrical engineering

Supply and demand

Channel (broadcasting)

Engineering

Macroeconomics

Labour economics

Economics

Recession

Financial crisis

Great recession

Monetary economics

Business cycle

The Journal of Economic Perspectives

What is the role of the financial sector in explaining business cycles? This question is as old as the field of macroeconomics, and an extensive body of research conducted since the Global Financial Crisis of 2008 has offered new answers. The specific idea put forward in this article is that expansions in credit supply, operating primarily through household demand, have been an important driver of business cycles. We call this the credit-driven household demand channel. While this channel helps explain the recent global recession, it also describes economic cycles in many countries over the past 40 years.

Finance and Business Cycles: The Credit-Driven Household Demand Channel