What drives economic growth during credit expansions — households or firms?

The paper “Quantifying the Macroeconomic Impact of Credit Expansions,” co-authored by PHBS Assistant Professor Yicheng Wang, examines this question using evidence from U.S. bank deregulation across states in the 1980s, which lowered borrowing costs and triggered credit expansion.

The findings show that the firm channel accounts for around 71% of the cumulative effect of credit expansion on output and employment during the first ten years after deregulation. Lower borrowing costs encourage firms to invest and expand, gradually increasing capital stocks and economic activity.

The household channel contributes about 27% overall, while playing a larger role in the rise of consumption and in the early years following deregulation.

About the Researcher 

Yicheng Wang is an Assistant Professor at Peking University HSBC Business School. His research focuses on empirical and quantitative macroeconomics, macro finance, firm dynamics, and the Chinese economy/development. His work has been published in leading journals such as Journal of Monetary Economics, American Economic Journal: Macroeconomic, Management Science, Review of Economic Dynamics, Journal of Economic Dynamics and Control, among others.