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

Abstract

Abstract I pool data from all large multimarket lenders in the United States to estimate how many of the over 7 million jobs lost in the Great Recession can be explained by reductions in the supply of mortgage credit. I construct a mortgage credit supply instrument at the county level, the weighted average (by prerecession mortgage market shares) of liquidity‐driven lender shocks during the recession. The reduction in mortgage supply explains about 15% of the employment decline. The job losses are concentrated in construction and finance.