Working Paper: CEPR ID: DP17061
Authors: Federico Huneeus; Joseph Kaboski; Mauricio Larrain; Sergio Schmukler; Mario Vera
Abstract: We study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. We analyze a public credit guarantee program in Chile during the COVID-19 pandemic using unique transaction-level data of demand and supply of credit, matched with tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6% of GDP and increasing firm leverage. Despite increased lending to riskier firms at the micro level, macroeconomic risks remain small because of several mitigating factors. We confirm our empirical findings with a model of heterogeneous firms and endogenous default.
Keywords: bank credit demand; bank credit supply; covid-19; crises; debt; firm risk; macroeconomic risk; public credit guarantees
JEL Codes: G21; G28; G32; G33; G38; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Exclusion of riskiest firms (G33) | Low aggregate macroeconomic risks (E19) |
| Bank screening (G21) | Low aggregate macroeconomic risks (E19) |
| Government absorption of tail risk (G52) | Low aggregate macroeconomic risks (E19) |
| Credit program design + Firm and bank behavior (G21) | Distribution of crisis credit (H12) |
| Public credit guarantee program (H81) | Firm leverage (G32) |
| Riskier firms (G32) | Increased likelihood of applying for guaranteed loans (H81) |
| Riskier firms (G32) | Increased indebtedness (F65) |
| Credit program (H81) | Aggregate macroeconomic risks (E19) |
| Firms just below eligibility threshold (L25) | Significant drop in leverage (G32) |