On the Direct and Indirect Real Effects of Credit Supply Shocks

Laura Alfaro · Manuel García‐Santana · Enrique Moral‐Benito

64 citations0/0 files storedNational Bureau of Economic Research

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Banking stability, regulation, efficiency Monetary Policy and Economic Impact Working Capital and Financial Performance

Abstract

We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages.We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature.We construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity using firm-specific measures of upstream and downstream exposure.Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period, especially during the 2008-2009 global financial crisis.In terms of mechanisms, trade credit extended by suppliers and price adjustments play a role in accounting for downstream propagation of financial shocks.

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References

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