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Published in:
2017 | OriginalPaper | Chapter
17. Labour Market Conditions Shocks and Credit Growth
Authors : Nombulelo Gumata, Eliphas Ndou
Published in: Labour Market and Fiscal Policy Adjustments to Shocks
Publisher: Springer International Publishing
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Abstract
Evidence shows that GDP and credit growth increase in response to loosening in the labour market conditions shock. Furthermore, labour market conditions interact with credit growth via their impact on the animal spirits and business optimism. A tight labour market conditions shock leads to a large deterioration in consumer and business confidence, which are vital in stimulating spending through either increased consumption or investment. The tight labour market conditions lead to tighter credit conditions, which may translate into tighter credit lending standards and thus reduce credit growth. Similarly, credit conditions accentuate the decline in household credit growth more than its impact on GDP growth. Thus, the concurrence of tight labour market conditions and tight credit conditions by weakening consumer and business confidence explains the slowdown in household credit demand.